Vietnam: Foreign ownership regulation hinders banks from finding strategic shareholders

• Dec 24, 2021

Many banks expect the participation of foreign strategic shareholders will help them increase capital and improve governance capacity and competitiveness, but the current regulations on foreign ownership ratio are making it difficult,  according to experts.

Under the current regulations on foreign investors buying shares of Vietnamese banks, the total share ownership rate of foreign investors must not exceed 30 per cent of the charter capital of a bank.

According to Nguyen Thi Hong Minh, director of the Central Institute for Economic Management (CIEM), an increase of the share ownership ratio for foreign investors will bring more hope to commercial banks in attracting more foreign capital and having access to better governance and technologies.

Nguyen Anh Duong, head of the CIEM’s Research Division, said the increase of the foreign ownership ratio in banks can bring many benefits such as improving the ability for local banks to meet Basel II standards, helping Vietnam to meet its commitments on the foreign ownership rate in free trade agreements (FTAs), especially in the EU-Vietnam Free Trade Agreement (EVFTA) and increasing the ability to attract investment and finding strategic investors.

Sharing the same view, Nguyen Quoc Hung, general secretary of the Vietnam Banks Association (VNBA), said in the current context, it is necessary to increase the foreign ownership ratio in banks as banks have demand for increasing capital to restructure in association with handling bad debts.

According to Hung, limiting the room for foreign investors at 30 per cent also affects the opportunities for mergers and acquisitions in Vietnam and makes the country’s M&A market less developed. Meanwhile, the restriction has caused banks to miss development opportunities due to a shortage of capital while foreign investors are a large capital supply channel.

As of June 30 this year, 11 Vietnamese banks had foreign institutional shareholders who owned more than 15 per cent of their charter capital and five other banks had a rate at more than 25 per cent, Hung said.

Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam (BIDV), said it is the right time to increase the foreign ownership ratio as the pressure to increase capital of the banking industry remained high. 

According to Luc, within the last decade, the average growth rate of total assets of the banking system was 10-12 per cent per year while lending also increased 14 per cent per year on average.

With the growth, banks are forced to increase capital to ensure their capital adequacy ratio (CAR) to meet regulations of the State Bank of Vietnam, he said, adding reputable rating agencies will base on that to assess credit ratings, which helps raise the attractiveness in the banking industry.

Source: Vietnam News