Foreign hands to help reshape banking

This follows a draft decree that would enable them to increase ownership stakes to 20 per cent of its charter capital, while loosening other regulations.

“Hiking foreign bank ownership in local banks is the fastest way to scale up capital flows into the banking system as well as to apply international standards in corporate governance and risk management to local banks,” said Standard Chartered Vietnam chief executive officer Louis Taylor.

But it’s not clear, Taylor added, that many foreign banks would be eager to make such investments.

Economists view loosening room to foreign investors in the present context of banking sector’s restructuring as crucial to accelerate restructuring pace. During Asia’s financial turmoil in 1997 and 1998, Indonesia and Korea succeeded in bringing their banking system out of crisis and gathering stable growth through loosening room to foreign partners at local banks.

In addition to allowing foreign partners to boost ownership stakes from 15 to 20 per cent,  the proposal aims to abolish a restriction that allowed only  credit institutions with non-performing loan rates of below 3 per cent to sell stakes to foreign partners.

Taylor cautioned, however, that foreign investors may still shy away from Vietnam’s banking system in the throes of restructuring

 “I am not sure foreign investors will pay due heed to weak banks since these banks often do not have well-placed branch offices and lack of competitive products whereas their customer base remains insignificant, making them less charming to foreign investors,” Taylor said.

HSBC deputy general director Pham Hoang Hai concurred and suggested that the regulations should be loosened further—perhaps allowing to at least a 30 percent foreign ownership to attract attention.

At the Vietnam Business Forum held in late 2012, the foreign bank group called for State Bank to bolster foreign investors’ ownership at local banks to 51-65 per cent.

A top State Bank executive said increasing the allowable foreign ownership was a good solution to support banking sector restructuring but it must be handled with prudence to avert doing harm to national interests.

State Bank governor Nguyen Van Binh has warned that, given the uncertainty of Vietnam’s economy and value of the banks’ stocks, local banks could fall into foreign ownership if the rules were loosened too much.

The Vietnamese banking market is viewed as a fertile opportunity to many foreign investors despite the restrictions.  

“People having bank accounts in Vietnam are just 12-15 per cent of the population, one of the lowest in the region. This reflects enormous potential for development in banking sector in Vietnam,” said HSBC Vietnam CEO Sumit Dutta.