Estimating Potential Gains from Banks Mergers in Vietna using Two-Stage Data Envelopment Analysis

Abstract

During the restructuring period of the Vietnam banking industry from 2011, mergers and
acquisitions (M&As) play a crucial role to assist the banks to take advantage of the bank
network, technology, and management.
This paper aims to calculate the potential efficiency gain of 16 hypothetical bank mergers in
Vietnam during the year 2015 by using Data Envelopment Analysis (DEA) with two stages for 20
commercial banks. Next, we decompose each merger gain into three components: scale
efficiency, harmony efficiency, and technical efficiency. Harmony efficiency measures the power
of the merger to mix the inputs to create the average outputs, while scale efficiency reflects the
ability of the merger to operate fully or partly at the size of the merger. Technical efficiency
shows the power of the merger to enhance technology for the merged banks.
The findings show that most merger efficiency gain derives from the harmony effect and
technical effect. The results also allow us to compare the efficiency of hypothetical mergers with
the actual ones in 2015. Thus the paper is insightful for bank managers, investors, and
policymakers, to make a decision about future mergers and to evaluate the effectiveness of
government measures during the restructuring period