VietNamNet Bridge – Strategic foreign investors on March 18 showed disapproval of a scant increase of the foreign ownership limit (FOL) in local banks.

Foreign investors discuss the FOL issue at the seminar in Hanoi City on March 18.

The central bank’s Decree 01, which took effect late last month, caps the share ownership percentage of a foreign strategic investor at less than 20% of chartered capital of a Vietnamese credit institution, five percentage points higher than that in the previous Decree 69/2007/ND-CP.

However, the total percentage of shares owned by all foreign investors in a domestic bank shall not exceed 30%, unchanged from the current regulation.

In special cases, to restructure weak banking institutions, the Prime Minister may decide whether those ratios could exceed the limits on a case-by-case basis.

Speaking at a seminar on business environment improvement in Hanoi on March 18, Nicolas Audier from the European Chamber of Commerce in Vietnam (EuroCham), said the new ratio discouraged most foreign investors who are interested in investing in local banks.

The decree contains no significant improvements as total foreign ownership at a bank remains at 30% while the 20% limit for strategic investors has been in place already.

Audier mentioned Asia Commercial Bank had been controlled by a group of shareholders while Standard Chartered Bank and the International Finance Corporation (IFC), which owned shares in the local lender, did not know about it. As foreign partners did not have enough power, they could not do anything positive for banks with their involvement.

Vietnam should weigh a higher FOL, especially at a time when the banking industry is facing a lot of problems such as huge bad debt, complicated cross ownership and poor governance. Without the involvement of strategic foreign partners, merging weakened banks could not help settle bad debt, Audier said.

Remco Gaanderse from ING Bank said the Government should have raised the ownership limit applicable to foreign strategic partners to 50-51%, instead of 20%.

If the 20% limit is maintained, Vietnamese banks still manage themselves and they cannot approach modern governance models of international banks, he said.

Mac Quang Huy, managing director of Maritime Bank Securities Company, said if the FOL was revised up five or 10 years later, the goal of attracting strategic foreign investors to the nation to join the bid to solve bad debt would turn meaningless. “We should increase the FOL right now,” he stressed.

However, representatives of government agencies expressed concerns over the suggestions.

Nguyen Manh Hung at the banking strategy institute under the central bank said foreigners now hold around 6% of total chartered capital of the banking system. Only some lenders such as ABBank and VietinBank have seen the strategic foreign room full. Therefore, foreigners actually have yet to make strong investments in Vietnam.

However, foreigners strongly disbursed money into the local stock market in 2007 and 2008 and then withdrew it. So, it is necessary to stay cautious, Hung added.

Source: SGT