GBS – Increasing the ownership ratios that foreign strategic partners can hold at Vietnamese joint stock banks, not increasing the chartered capital in order to encourage the merger of banks are proposals by EuroCham Vietnam when talking about the bank restructuring. Government urged to offer more room to foreign partners
An amendment of the Decree 69 under which the requirement to seek the Prime Minister’s approval for increasing the ownership ratio, that a foreign strategic partner can hold in a Vietnamese bank from 15 percent to 20 percent is considered very necessary. Besides, the government should ensure that there is no change in the regulation that the total foreign ownership ratio in a Vietnamese bank must not be higher than 30 percent.
These are the most important points among the proposals made by EuroCham.
According to the institution, when the State Bank wishes to consolidate the banking system in Vietnam, it needs to build a roadmap on removing the requirements on the shares holding of foreign partners.
It is well known to everyone that when becoming strategic partners, foreign investors not only make capital contribution, but also provide management support, such as risk management, liquidity management and debt trading. As for the fledgling banks with weak management skills, the allowed higher ownership ratios will allow to help improve the technology and corporate governance skills.
The government of Vietnam should think of raising the ownership ratios of foreign strategic partners at local banks to 49-100 percent, the thing that many other developing economies are applying. This will help create a driving force for foreign banks to help improve domestic banks, according to Managing Director of the Hong Kong Shanghai and Banking Corporation HSBC Sumit Dutta.
However, it is necessary to ensure the transparency in the scope and the time of increasing the allowed foreign ownership ratios in the banking sector, to give enough time to strategic partners and domestic banks to draw up reasonable plans.
Regarding the opinions that the high foreign ownership ratio at local banks would bring certain risks to foreign investors in the context of the low transparency in Vietnam, the managing director said that this is not a too serious problem.
He said that the transparency can be seen in the US and many other countries in the world as well.
Despite a lot of challenges, foreign investors have been flocking to Vietnam to become strategic partners of Vietnamese banks. In September 2011, Japanese Mizuho Bank purchased 15 percent of Vietcombank’s shares which have been issued and now on circulation. The investment deal was worth 567.3 million dollars, or 11,800 billion dong, the highest ever recorded level in the merger and acquisition (M&A) market in Vietnam.
Meanwhile, IFC has invested 182 million dollars in VietinBank, buying 10 percent of the Vietnamese bank’s stakes.
“No need to set up a cap on the issue. A fixed number applied to different banks with different conditions proves to be unreasonable,” said Tomaso Andreatta, Deputy Chair of Amcham
EuroCham thinks that Vietnam should not ask banks to increase their chartered capital to 5 trillion or 10 trillion dong by 2012 and 2015, but it should use other tools to encourage merging weak banks.
Ông Alain Cany, Chair of EuroCham said that the requirement to increase chartered capital seems to focus on the scale of banks rather than the quality of the banks, and big banks would have more advantages, while small banks would face disadvantages.
All commercial banks have been told not to have the credit growth rate of more than 20 percent in 2011. While agreeing that it is necessary to restrict the credit growth rate in a national economy, when the bank credit increased sharply from 65 percent of GDP to 125 percent of GDP within five years – an unsustainable growth rate, experts still believe that the same 20 percent limit to all banks proves to be unreasonable.
