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Experts propose higher foreign holding in Vietnamese banks
The Hanoitimes – As for poorly-performing banks, prestigious foreign banks should be permitted to buy up to 100 per cent of the banks’ charter capital.
The Vietnamese government should increase the foreign ownership ratio in local banks to facilitate the institutions to lure luring capital and governance experiences from prestigious foreign banks, experts proposed.
Under a proposal sent to Governor of the State Bank of Vietnam Le Minh Hung recently, the Vietnam Association of Financial Investors (VAFI) said state-owned and private banks in Vietnam have made progresses in privatization, listing on the stock market and bad debt reduction in recent years.
However, VAFI said, in order to make the domestic banking system truly healthy and sustainable, it is necessary to have a new legal framework to facilitate domestic banks in attracting capital and governance experiences from prestigious foreign banks.
Good corporate governance experiences from the foreign banks would help prevent bad debts and wrong doings in the banking system to arise, VAFI emphasized.
To facilitate the foreign capital attraction, the government should drastically change the shareholder structure in both state-owned and private banks, allowing foreign banks to hold larger stakes in the domestic banks, VAFI proposed.
Specifically, VAFI said foreign ownership limit at domestic well-performing banks should be increased from the current 30 percent to 49 percent.
Besides, a foreign bank should be allowed to hold at a maximum of 40 percent of the bank’s charter capital in at least five years. If transferred, the stake must be transferred to another reputable foreign bank to ensure that the Vietnamese bank is not corrupted or manipulated.
As for poorly-performing banks, prestigious foreign banks should be permitted to buy up to 100 per cent of the banks’ charter capital. Conditions for foreign banks to be qualified for the purchase and transfer of the banks’ stake should be kept the same as those applied with well-performing banks.
Banks need capital
According to experts, as the domestic capital market is underdeveloped, domestic banks are in the dire need of foreign capital to meet Basel II standards by 2020 as required the central bank.
However, experts said it isn’t easy for local banks to lure foreign capital due to the low foreign ownership ceiling.
Banking expert Nguyen Tri Hieu said the current foreign ownership cap of 30 percent isn’t encouraging foreign investors to pour into Vietnamese banks as they can’t be involved in banks’ decision-making with such holding rate.
To make Vietnamese banks more attractive to foreign investors, Hieu also suggested the government increase the foreign ownership limit, adding the measure was necessary and feasible as the local banks’ shares were luring foreign investors.
According to expert Vo Tri Thanh, though the government can permit banks to either retain their profits or pay dividends in shares to help banks increase capital, but it is only a short-term measure.
“The best solution in the long term is reducing state ownership at banks and allowing higher foreign holdings,” Thanh said.
He also suggested if the government is still cautious about the national financial security and doesn’t want to open the banking industry quite widely, it can consider increasing the foreign holding ratio by issuing ‘golden shares’ for foreign investors. It means the investors can get all rights with the shares, except the voting right.
In another measure, experts suggested the government currently can increase the foreign ownership limit at banks to 35 percent. Then, the rate will be continuously adjusted up to 51 percent in 2021-2025 as a government’s roadmap approved in August last year.
Expert Can Van Luc said the measure should be taken now as foreign investors are showing their keenness in Vietnam’s banks thanks to the country’s positive economic prospects.
However, VAFI said, in order to make the domestic banking system truly healthy and sustainable, it is necessary to have a new legal framework to facilitate domestic banks in attracting capital and governance experiences from prestigious foreign banks.
Good corporate governance experiences from the foreign banks would help prevent bad debts and wrong doings in the banking system to arise, VAFI emphasized.
To facilitate the foreign capital attraction, the government should drastically change the shareholder structure in both state-owned and private banks, allowing foreign banks to hold larger stakes in the domestic banks, VAFI proposed.
Specifically, VAFI said foreign ownership limit at domestic well-performing banks should be increased from the current 30 percent to 49 percent.
Besides, a foreign bank should be allowed to hold at a maximum of 40 percent of the bank’s charter capital in at least five years. If transferred, the stake must be transferred to another reputable foreign bank to ensure that the Vietnamese bank is not corrupted or manipulated.
As for poorly-performing banks, prestigious foreign banks should be permitted to buy up to 100 per cent of the banks’ charter capital. Conditions for foreign banks to be qualified for the purchase and transfer of the banks’ stake should be kept the same as those applied with well-performing banks.
Banks need capital
According to experts, as the domestic capital market is underdeveloped, domestic banks are in the dire need of foreign capital to meet Basel II standards by 2020 as required the central bank.
However, experts said it isn’t easy for local banks to lure foreign capital due to the low foreign ownership ceiling.
Banking expert Nguyen Tri Hieu said the current foreign ownership cap of 30 percent isn’t encouraging foreign investors to pour into Vietnamese banks as they can’t be involved in banks’ decision-making with such holding rate.
To make Vietnamese banks more attractive to foreign investors, Hieu also suggested the government increase the foreign ownership limit, adding the measure was necessary and feasible as the local banks’ shares were luring foreign investors.
According to expert Vo Tri Thanh, though the government can permit banks to either retain their profits or pay dividends in shares to help banks increase capital, but it is only a short-term measure.
“The best solution in the long term is reducing state ownership at banks and allowing higher foreign holdings,” Thanh said.
He also suggested if the government is still cautious about the national financial security and doesn’t want to open the banking industry quite widely, it can consider increasing the foreign holding ratio by issuing ‘golden shares’ for foreign investors. It means the investors can get all rights with the shares, except the voting right.
In another measure, experts suggested the government currently can increase the foreign ownership limit at banks to 35 percent. Then, the rate will be continuously adjusted up to 51 percent in 2021-2025 as a government’s roadmap approved in August last year.
Expert Can Van Luc said the measure should be taken now as foreign investors are showing their keenness in Vietnam’s banks thanks to the country’s positive economic prospects.
Source: http://www.hanoitimes.vn/economy/2019/04/81E0D518/experts-propose-higher-foreign-holding-in-vietnamese-banks/