Vietnam easing limits on foreigners owning banks

The State Bank of Vietnam issues a draft decree that would allow foreigners to take majority stakes in local banks “case by case”.
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Vietnam: The government is keen to upgrade its banking industry
<div style="text-align: left;"> Vietnam: The government is keen to upgrade its banking industry </div>

Capital-hungry Vietnam is further opening the door to foreign ownership of its banks.

Local brokers report that the government, announced through a State Bank of Vietnam circular, has issued a draft decree that would allow the prime minister to let foreigners take strategic stakes in banks beyond 30%, on a case-by-case basis.

Such “foreign strategic partners” to local purveyors of credit must be a financial institution with at least $20 billion in total assets and should own less than 10% of another bank in Vietnam.

The proposal would also ease rules about local banks selling shares, which currently require them to have no more than 3% of assets non performing, or reporting a profitable year. No Vietnamese bank comes close to meeting those levels, with most financial institutions in the red and the government acknowledging bank NPLs have reached 10% of assets (a figure that private-sector analysts believe may be twice that).

The opportunity for foreign banks is most immediate to Japanese institutions, which are already engaging with Vietnamese banks, but will also create opportunities for other investment banks and private-equity investors.

Vietnam’s top-four state-owned banks either have existing Japanese shareholders or are in talks to sell stakes to them.

In 2011, Mizuho took a 15% stake in Vietcombank and last year, Mitsubishi UFJ acquired 20% of VietinBank. Local sources say as two partly privatised banks are slated to merge, Sumitomo Mitsui Financial Group could increase its exposure: the Japanese firm already owns 15.3% of Eximbank and is reportedly in discussions to play a bigger role should Eximbank complete a proposed merger with Sacombank.

Finally, Nomura was at one point reportedly in talks to become a strategic shareholder of Bank for Investment and Development of Vietnam (BIDV, likened to China’s ICBC; BIDV has been approved to sell up to 15% since last spring, with Morgan Stanley advising it). It's not clear whether those talks ever turned serious; a Nomura spokesman declined to comment.

However, the government’s main reason for liberalising foreign ownership of banks is aimed at a dozen or more weak banks and other financial institutions, many of them being spun off from keiretsu-like conglomerates, that cannot survive without capital injections.

The government is now requiring these conglomerates to divest themselves of finance-related businesses by 2015. State-owned enterprises such as PetroVietnam own businesses in banking, securities, real estate and insurance. These are generally money-losers.

With Vietnam also committed to joining the Asean Link for cross-border equities trading in 2015, there is already strong interest from banks and private equity investors in Malaysia, Singapore and Thailand.

Japanese, Korean and Taiwanese companies are also major investors in Vietnam, and Korea’s Shinhan Bank and Malaysia’s Hong Leong Bank are among the five international banks with a domestic, wholly owned licence (along with ANZ, HSBC and Standard Chartered).

“The biggest issue for foreigners will be whether they are listened to on the board,” says Pham Ngoc Bich, managing director of institutional sales at SSI, one of Vietnam’s leading brokerages.

He notes that corporate governance is a challenge. Senior executives at both state-owned and private banks, such as Agribank (the country’s biggest bank) and Asia Commercial Bank, have been arrested over issues of corruption and mismanagement over the past six months.

Bich says these scandals, which have rocked the stock market, have prompted the government into a renewed drive to improve risk management, deregulate the banking sector and address the growing threat of non-performing loans.

For a deeper look at Vietnam’s financial sector and bond markets, see the March edition of FinanceAsia magazine.

¬ Haymarket Media Limited. All rights reserved.
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