Lifting the cap of foreign ownership in Vietnamese banks was necessary to have more capital for restructuring and improving the competitiveness of the domestic banking sector but this should be done with caution and an elaborate roadmap, said banking experts.
This would help not only increase the attraction of domestic banks’ shares as foreign investors would participate in their corporate governance but also facilitate the settlement of non-performing loans (NPLs), raise the capital adequacy ratio and step up the application of Basel II standards, they added.
CEO of HSBC Vietnam Pham Hong Hai said foreign investors began buying shares to become strategic partners in Vietnamese banks in 2006 and 2007. However, the cap on foreign holdings in a Vietnamese bank is limited at 30 percent and the maximum share a foreign bank can hold to become a strategic partner of a local bank is only 20 percent of its total shares. This is far from enough for foreign investors to have their voice in local banks’ governance decision making process.
Economic expert Le Xuan Nghia said a number of foreign investors interested in investing in the country’s commercial banks, even small ones with good management and acceptable NPL rate, expected the foreign holding cap would be raised to 51 percent.
“With the current foreign ownership limit, it is easy to understand that foreign investors are not keen on local banks, especially weak ones with a high NPL rate and requiring fundamental changes in the management of risks, particularly credit risks,” Nghia added.
He went on to say that even large-sized and state-owned banks also needed foreign capital to maintain their capital adequacy ratio and survive international financial shocks.
He suggested keeping the foreign ownership cap of 30 percent for healthy local banks, but raising it to 51 percent for average banks and to 100 percent for weak banks.
However, a banking expert suggested not increasing the foreign holding limit hastily for all banks but raising it gradually year after year.
Regarding the anxiety that the local banking system will be dominated by foreign investors following the removal of the current foreign holding cap, experts said like other foreign banks, the State Bank of Vietnam always had sufficient instruments to control foreign investors’ activities.-(VLLF)