Vietnam banks acquiring 'weak' banks can raise foreign ownership to 49%

Vietnamese banks that acquire "weak" banks can raise their foreign ownership ratio to 49%, higher than the current maximum level of 30%, according to a draft decree.

The draft rule is an incentive for Vietnamese banks taking over or supporting the restructuring of banks that the State Bank of Vietnam (SBV) labels "weak".

The drafted decree will amend Decree No. 01/2014/ND-CP on foreign investors buying stakes in Vietnamese credit institutions.

Under Decree No. 01, the foreign ownership ratio must not exceed 5% of charter capital for an individual and 15% for an institution. The aggregate foreign ownership is capped at 30%.

Apart from this proposed incentive, banks that support the restructuring of "weak" banks are expected to enjoy other preferences from the SBV.

A typical example occurred at the beginning of October when domestic banks VPBank, HDBank, Vietcombank and MB Bank supported the restructuring of some "weak" lenders and saw their credit growth cap for 2022 raised to 23-27%. Meanwhile, the central bank’s current credit expansion cap for the whole banking system this year is 14%.

In the EU-Vietnam Free Trade Agreement that took effect in early August 2020, Vietnam pledged to consider allowing two European credit institutions to own up to 49% of the charter capital of two Vietnamese banks within five years from the enforcement date.

The commitment does not apply to Vietnam’s "Big 4" banks, namely Agribank, Vietcombank, BIDV and VietinBank. Agribank is wholly state-owned while the remaining three have the state as majority shareholder.

Some Vietnamese banking experts argue that the foreign ownership limit should be lifted as soon as possible as Vietnamese banks have great demand for equity hikes to meet Basel II and Basel III requirements, especially as their capital adequacy ratio is lower than regional peers.

Data from the Securities Depository Center as of early August this year showed that about half of the 31 Vietnamese joint stock banks had foreign ownership exceeding 15%.

Of these, seven banks already or nearly hit the cap, namely ACB, MB, MSB, VIB, OCB, Techcombank and TPBank. Others locked their foreign ownership levels lower, including MB (23.23%), Techcombank (22.47%), OCB (22%), and VIB (20.5%), respectively.

On the contrary, several Vietnamese banks had very low or zero foreign ownership ratios like VietCapital Bank, Kien Long Bank, Lien Viet Post Bank, SHB, SeABank, Bac A Bank, Viet A Bank, and VietBank.

At present, private bank VIB plans to lift its current foreign ownership ratio of 20.5% to 30%, the highest allowed by law.

In a document seeking its shareholders’ nod, the lender, listed on the Ho Chi Minh Stock Exchange as VIB, said a 30% ratio would offer “big chances” to both foreign investors and existing shareholders.