The State Bank of Vietnam (SBV) has proposed raising the foreign ownership cap at domestic commercial banks with plans to take over poor-performing banks from 30 to 49 percent.
The proposal was stated in the SBV’s draft decree amending and supplementing some articles of the Vietnamese government’s Decree 01/2014/ND-CP on foreign investors’ purchase of shares at Vietnamese credit institutions.
According to the Vietnamese central bank, the proposal will pave the way for domestic credit institutions to enhance their financial capacity as they can attract more foreign investment, increase charter capital, and improve their governance and technology.
As planned, four local commercial banks were mandated to buy a poor-performing bank each.
In particular, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Military Bank (MB), Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank), and Vietnam Prosperity Joint Stock Commercial Bank (VPBank) announced their plans to take over DongA Joint Stock Commercial Bank (DongA Bank), Vietnam Construction Bank, Ocean Commercial One Member Limited Liability Bank (Oceanbank), and Global Petro Commercial Joint Stock Bank (GPBank).
However, Vietcombank cannot see its foreign ownership cap increase to 49 percent as over half of its charter capital is being held by the State.
As a result, the foreign ownership limit at MB, HDBank, and VPBank may be increased.
Two out of these banks wanted their foreign ownership cap to be raised to 49 percent.
According to the two lenders, the foreign ownership cap hike will not cause a great impact on the local banking system.
To own at least 10 percent of Vietnamese banks’ charter capital, the SBV required foreign institutions to be rated as stable at the lowest by international credit rating organizations.
Foreign institutions must have a strong financial capacity and commit that their purchases of stakes from Vietnamese credit institutions will neither affect the safety and stability of the local banking system, create a monopoly nor hinder the competition among Vietnamese credit institutions.
The SBV said that the foreign ownership cap hike should not be applied to all commercial banks in Vietnam, adding that foreign investors should be encouraged to invest in poor-performing banks and those taking over other banks.