FOLs will help banks revamp

Insiders have argued for raising foreign investment caps at banks, to facilitate needed capital flows

According to Vo Tan Hoang Van, general director of Ho Chi Minh City-based Saigon Commercial Bank (SCB), foreign investor participation is not only crucial for the local banking system’s development, it is essential to credit institution restructuring.

As capital expansion target at local credit institutions have been modestly hit for the past two years due to limited local resources, Van proposed loosening foreign investor ownership limits (FOLs) at local commercial banks to 49 per cent or more. In the meantime, he said, the government and central banks should consider relaxing conditions applied to strategic foreign investors.

“Under current regulations, strategic investors must be financial institutions with over $1 billion in chartered capital and more than $10 billion in total asset value. These conditions have proved unsuitable,” Van said.

“There are many more organisations and investment funds out there to participate in restructuring local banks and credit organisations. They can help improve local risk management and governance systems, teaming up with prestigious organisations and advisory firms to do so.”

Pham Hong Hai, CEO of HSBC Vietnam, said that to attract foreign investors to Vietnam’s banking restructure, ownership rates at local banks need to be changed. He believes that foreign investors will not want to buy into local banks as they make the transition to Basel II banking standards if they cannot have majority control.

“Besides, using state budget to tackle banks’ bad debts needs consideration, as foreign investors do not willingly participate in bank restructuring if they do not receive government support in capital and other conditions,” Hai said.

Han Ngoc Vu, CEO of privately-owned Vietnam International Bank (VIB), said that bad debts have emerged as a thorny issue, hampering national economic development. The state-run Vietnam Asset Management Company has not created additional capital sources to resolve bad debts, but has required banks to dedicate a portion of profits to loss provisioning.

According to Vu, currently many financially capable foreign organisations with professional expertise are interested in buying local credit institutions’ bad debts, which is a good opportunity for the banking sector to address the problem.

But current regulations do not allow foreign debt buyers to take on collateral in the form of real estate - which is the most viable asset for these bad debts.

To remove this obstacle, Vu suggested the government, the State Bank of Vietnam (SBV), and related authorised agencies allow foreign debt buyers establish wholly foreign-owned debt trading firms, pursuant to the government’s Decree 69/2016 on business conditions for debt trading business.

These debt trading firms, after receiving collateral in the form of real estate products linked to debts, will have the right to authorise debt sellers - local credit institutions - to continue managing these distressed assets. In this scenario, recouped capital would be given back to the debt trading firm.

“This scheme needs co-ordination and approval from related management agencies and sectors, including SBV and the Ministry of Justice. If it could be implemented, we would have an additional source in solving bad debts,” Vu said.

About these proposals, SBV Deputy Governor Le Minh Hung said having in place a specific regulatory framework for resolving bad debts is essential for the future. The proposed law is called the Law on Supporting Bank Restructuring and Solving Bad Debts.

This law must include ways to deal with bank collateral and lenders’ interests, in addition to improving the relevant regulatory system.