VietNamNet Bridge – Industry experts welcomed the government’s Decree 01/2014/ND-CP which relaxes the bank ownership cap rules for foreign investors.

VIR’s Trinh Trang and Nguyen Trang talked with some industry players about the importance of the decree.

ANZ bank illustration photo

Alan Pham Chief economist at VinaCapital

Any changes in foreign ownership limit regulations are to be welcomed, no matter how small. Foreign ownership is a sensitive issue for Vietnam. So we must expect the government to proceed slowly. My impression is that foreign ownership is treated as a matter of national sovereignty and is handled very carefully.

Foreign investors will appreciate the new feature by which the 20 per cent limit can be offered to them without having to go through an approval process by the prime minister. This will simplify administrative procedures and speed up the investment process.

Foreign investors will appreciate the opportunity to invest in weak banks because it is in these cases that they can make the most difference. There are only a limited number of banking licenses that have been issued.

The State Bank is not likely to issue any more. So those investors who want to be a part of Vietnam’s banking system will find entry via existing banks, even weak ones.

I think the new decree will increase the values of listed banks and drive up their share prices, helping the stock market develop in 2014, as it did in 2013. Overall this is a positive development.

Marc Djandji Head of Investment Banking at PetroVietnam Securities

The decree is a move in the right direction. But I understand that it might not be what we expected or what foreign investors would have liked to see. I often work with investors and to invest in local banks, investors are looking for full ownership.

In terms of how the decree affects the market and foreign investor interest to invest in local banks, there are different aspects that need to be looked at.

And the end result might not be an increase in foreign investments in banks if they can’t consolidate their investments into their financial statements. It might be too costly for them to invest under Basel III. Then only full ownership can solve this issue or a 51 per cent ownership.

Tareq Muhmood CEO ANZ Vietnam

The local banking sector needs capital and that has been clearly identified. The State Bank has done a good job in addressing the issue of NPLs and now it is time to address the issue of capital shortages. This is definitely a step in a right direction.

It is, however, not the answer to all the capital needs of the banking sector. But it does help. If you look at Asian strategic partners, who seem to be more able to tolerate minority stakes, increasing from 15 per cent to 20 per cent may be more attractive to them.

In my view, this is not a complete answer, but the government is doing things step by step and this is a right step. The fact is that, with the increase to 20 per cent, local banks still remain in control of their own destiny while allowing some foreign investors to get bigger exposure.

This change may make a handy number of investors, mainly Asian partners interested.

Now it’s a good time for investors to start looking at the possibility to buy or to buy in this sector because prices are more reasonable; and for existing strategic partners, they may want to increase from 15 to 20 per cent.

To Hai CEO of Viet Capital Securities

Under the new decree, despite foreign ownership cap remaining unchanged, the relaxation in regulations governing each type of foreign investors shows a change in the central bank’s approach to solving the issue of non performing loans (NPLs) – the problem that drove down the banking system and Vietnam’s economy.

The implementation of Circular 02 in June 2014 would bring the reporting practice of Vietnamese banks on NPLs closer to international standards, which is a necessity in our view. However, with Circular 02 implemented, the true NPL ratio would be revealed, which, under our estimate, is about triple the reported figure. This means that many banks, especially smaller ones, will either have to sell their bad debts to the VAMC or need to be recapitalised. The first option, already offered by the central bank, is a “liquidity” approach, but arguably would create pressure on inflation.

We think what Vietnamese banks need now is a stronger balance sheet and they can only get that by new equity injections. Now the central bank is introducing a solution to the second option. By relaxing regulations on foreign ownership, the central bank aims for two things at the same time: to encourage the participation of foreign investors in the banking sector, allowing foreign investors to inject fresh equity into banking sector where the resources from domestic investors from our view have already reached their limit, and through that reduce the issue of cross-ownership had recapitalisation only come from domestic sources.

Tay Han Chong CEO of Mekong Development Bank

Once becoming a foreign strategic partner, foreign investors will certainly try hard to contribute to the development of the bank. Therefore, the loosened foreign ownership room of 5 per cent will provide favourable conditions for both sides. And local banks can attract capital to enhance their financial capability for the restructuring process.

Of course disagreement is inevitable. However, if the issue is solved, both sides will gain. However, with the ownership limit of 20 per cent, foreign partners can’t hold real influence, and investors will hesitate at pumping in capital. I think the foreign ownership cap must increase to 50 per cent.

Source: VIR