Foreigners bank on revamp

Kieu Huu Dung, director of the Department for Banks and Non-bank Financial Institutions (BNFI) under the SBV, said the department was drafting a new cap-lifting regulation, scheduled to be effective by the end of the year.
Under current regulations, stipulated in the SBV’s decision 228 issued in 1993 to cover foreign investor participation in Vietnam’s joint stock banks, one institutional investor may hold up to 10 per cent of a bank’s shares, while total foreign ownership is capped at 30 per cent.
The SBV’s move would be a nice surprise to both investors and analysts, who until now have taken for granted that the 10 per cent cap would remain in place for the long-term.
Three months ago, local press quoted an SBV official as saying any adjustment to the foreign ownership ratio in Vietnam’s banks will occur no sooner than 2010.
If approved, both investors and Vietnam’s banks will applaud the decision.
Lam Quynh Anh, a lawyer from Freshfields Bruckhaus Deringer Law Firm, said the 10-per cent limit kept foreign investors out of small banks. “Investors prefer cashing in on big banks and ignore small and unprofitable banks,” Anh said. “And it would be regrettable if foreign investors’ participation couldn’t bring what banks need.”
“With only 10 per cent of shares, institutional foreign investors cannot take part in management, thus are unable to improve banking technology and operations,” she said.
BNFI Director Dung acknowledged that opinions on the issue were still mixed. Some experts still insist on tight control over foreign ownership to avoid risks, while some say it’s necessary to gradually open the banking and finance market.
Dung said an open scheme would be better for the national economy. Reality has shown that sectors that open up always find it easier to develop and adapt to changes and shocks in the market.
He stressed there was no need to worry about risks, as the regulation proposed by BNFI would include provisions that allowed control over foreign ownership, because although the maximum ratio that one foreign investor could hold would rise from 10 to 30 per cent, the cap on the total shares would stay at 30 per cent.
Dung declined to reveal if there would be any changes in the regulations on permitting overseas Vietnamese (Viet Kieu) to buy shares in Vietnam’s banks. Under the current regulations, Viet Kieu are considered foreigners, and thus must comply with the restrictions stipulated in decision 228.