Vietnam to Lift Foreign Ownership Ratio Limit in Vietnamese Banks

Sumit Dutta, Chief Executive Officer of HSBC Vietnam, said that the higher foreign ownership ratio would not only allow foreign bankers to more quickly penetrate the Vietnamese market, but also help Vietnam ease the financial pressure in the banking system reshuffle.

However, foreign investors are eager to know how high the new limitation would be. The thing that they are most interested in now is the maximum foreign ownership ratio is high enough for them to obtain the right to manage the credit institutions. Only when having the right to control bank operation, will the investors be able to drive the banks on the way they want.

Louis Taylor, CEO of Standard Chartered Vietnam, said at the Vietnam Business Forum some days ago that though the State Bank turns the green light on foreign bankers, allowing hem to join the banking restructure process in Vietnam, it has not showed the ways foreign bankers can follow, especially the regulations on the maximum foreign ownership ratio.

CEO of a foreign bank in Vietnam has revealed that his bank would only consider making investment in a domestic bank, if foreign banks are allowed to hold the controlling stake ratio.

However, some foreign investors have said they do not care about the limit on the foreign ownership ratio. The State Bank may keep the current foreign ownership ratio limitation unchanged at 20 percent, but it needs to give foreign bankers the dominant right in operating banks.

The most important thing that foreign investors want to have when making investment in Vietnamese banks is not the percentages of stakes they can hold, but the right to rule the banks. They may hold only 20-30 percent of stakes, but they need to have the right to operate the banks.

Andy Ho, Managing Director of VinaCapital, an investment fund management company, which has invested in Eximbank, has revealed that VinaCapital would invest in other banks if there are more opportunities.

Meanwhile, analysts believe that it’s now the right time for Vietnam to remove the ceiling foreign ownership ratio in Vietnamese banks. In the past, the limitations were set up with an aim to protect domestic banks from foreign banks, which were believed to have big power and may take over domestic banks.

However, foreign banks have turned out to not be a threat to domestic banks.

Chu Viet Cuong, Advisor to HD Bank’s Board of Directors, said that the limitation was helpful for domestic banks prior to 2009, because the regulation helped domestic banks approach foreign banking technologies and take full advantage of foreign governance skills and capital, while this allowed to protect domestic banks and give them the opportunities to develop. However, in the current context of international integration, lifting the ceiling proves to be unavoidable.

Cuong went on to say that there’s no need to worry about the fates of domestic banks in the competition with foreign banks, since domestic banks have become powerful with huge capital and modern technologies.

Five years ago, experts predicted that a lot of domestic banks would be taken over by foreigners when they flock to Vietnam. However, no such a case has taken place so far. In fact, a lot of domestic banks have got big benefits from the cooperation deals with foreign banks.