Prime Minister Nguyen Xuan Phuc said Viet Nam might allow foreign investors to hold a stake exceeding the current cap of 30 per cent in domestic banks.

He spoke to managers of 16 leading world funds, whose combined portfolios amount to US$9.5 trillion, during a working session in Hong Kong last week.

Among the funds were State Street Global Advisors with $2.4 trillion, Colbert Nocom with $1.5 trillion and Morgan Stanley with $2 trillion.

Some smaller funds, such as Sunwah Group with $1 billion and VinaCapital with $1.4 billion, already invested in Viet Nam.

Jonathan Koon-shum Choi told Viet Nam Television that many investors were eyeing investments in equitised State-owned enterprises, while some other officials reportedly said they were interested in State utility and joint stock banks.

Phuc said the Vietnamese Government would create "the most advantegeous conditions ever" for foreign funds to invest in local firms, and it would recommend potential banks for investments.

He added that the Government would assure macro-economic stability, especially monetary stability, to facilitate foreign investment in Viet Nam.

Current regulations state that foreign ownership of any Vietnamese banks is capped at 30 per cent, and foreign strategic investors are collectively allowed to own only 20 per cent.

More specifically, an individual foreigner is allowed to hold no more than 5 per cent of a domestic bank's equity, and a foreign organisation may acquire a stake of 15 per cent in a local credit institution.

Earlier this year, some commercial banks asked the Government to increase the cap for foreign stakeholders to 35-40 per cent, or even higher. They included the Bank for Foreign Trade of Viet Nam, Viet Nam Bank for Industry and Trade, Sai Gon Bank and An Binh Bank.

‘Indispensible'

Industry insiders argued that such a cap increase was indispensible as it would help the banks improve their restricted finance and governance, and better grow in a context of rising competition.

Experts said the current cap made investments in domestic banks less attractive because foreign investors found that with low stakes they have little say in the decision making process.

The Bank for Investment and Development of Viet Nam, Military Bank and Viet Nam Prosperity Bank said it was hard for them to find foreign strategic parners due to the current limit.

A leader of KIS Viet Nam Securities Company told Thời báo Ngân hàng (The Banking Times) in August that allowing larger foreign ownership did not necessarily mean greater foreign investors' interest in local banks.

If a bank failed to prove growth potential, it would not be able to attract foreign investors even if it offered its entire equity to them, the official told the newspaper of the State Bank of Viet Nam (SBV).

The newspaper reported that foreign financial institutions — E.Sun of Taiwan, Public Bank Berhad of Malaysia, and Kasikorn Bank of Thailand — were changing their strategies, eyeing establishment of wholly foreign-owned banks in Viet Nam.

These institutions asked the SBV to allow them set up affiliates in Viet Nam when conditions permit. At the same time, other foreign organisations have withdrawn from local banks. Singapore's Fullerton Financial Holdings has divested from Mekong Development Bank, and another Singapore-based institution, Overseas Chinese Banking Corporation Limited, withdrew capital from Viet Nam Prosperity Bank in late 2013.

Fitch Ratings said on August 31 that although Vietnamese banks were still facing a range of structural problems, Viet Nam's strong economic performance was helping the country attract much-needed foreign capital into its banking system.

The rating agency revised the outlook for the banking sector to stable from negative in December 2015. 

VNS