Gov’t urged to help local banks lure foreign capital

April 01, 2019 - 11:00

The Government should help Vietnamese banks lure capital and experience from prestigious foreign banks so as to help local firms develop sustainably, experts said.

VietinBank is in a dire need of capital to meet Basel II standards. — Photo VietinBank
Viet Nam News

HÀ NỘI — The Government should help Vietnamese banks lure capital and experience from prestigious foreign banks so as to help local firms develop sustainably, experts said.

Under a document sent to Governor of the State Bank of Việt Nam Lê Minh Hưng this week, the Vietnam Association of Financial Investors (VAFI) said in recent years, State-owned and private banks in Việt Nam have made progress in equitisation, listing on the stock market and bad debt reduction.

However, VAFI said, in order to make the domestic banking system truly healthy and sustainable, it was necessary to have a new legal framework to facilitate domestic banks in attracting capital and governance experience from prestigious foreign banks.

Good corporate governance from foreign banks would help prevent bad debts and wrongdoings in the banking system, VAFI said.

To help local banks to attract foreign capital, the Government should drastically change the shareholder structure in both State-owned and private banks, allowing foreign banks to hold larger shares in domestic banks, VAFI said.

Specifically, VAFI said the foreign ownership limit at well-performing banks should be increased from the current 30 per cent to 49 per cent.

A foreign bank should be allowed to hold a maximum of 40 per cent of a local bank’s charter capital for at least five years. If transferred, the stake must be transferred to another prestigious foreign bank, VAFI said.

As for poorly-performing banks, prestigious foreign banks should be permitted to buy up to 100 per cent of the banks’ charter capital. Conditions for foreign banks to qualify for the purchase of poorly-performing banks or transferring their stake should be kept the same as those for well-performing banks.

According to experts, as the domestic capital market is underdeveloped, Vietnamese banks are in dire need of foreign capital to meet Basel II standards by 2020 as required by the SBV.

Analysts at Bảo Việt Securities Company (BVSC) said that to meet the Basel II standards by 2020 as planned by the central bank, listed commercial banks must increase capital by VNĐ237 trillion (US$10 billion) in 2018-19 if they wanted permission for credit growth of 14-15 per cent.

However, Lê Đức Thúy, former chairman of the National Financial Supervisory Commission, said that capital in banks had increased by only $2 billion over the past two years.

The race to increase capital of local banks is forecast to be fiercer this year as many banks had failed to do so last year. In early 2018, nearly 20 banks planned to raise capital, but only a few had succeeded by the end of the year.

However, it isn’t easy for local banks to lure foreign capital due to the low foreign ownership limit of 30 per cent of the bank’s charter capital.

“The current foreign ownership limit of 30 per cent does not encourage foreign investors to invest in Vietnamese banks, as they can’t be involved in decision-making with the holding rate,” independent banking expert Nguyễn Trí Hiếu told Việt Nam News.

To make Vietnamese banks more attractive to foreign investors, Hiếu also suggested the Government increase the foreign ownership limit, adding the measure should be taken now as foreign investors are showing interest in Vietnamese banks thanks to the country’s positive economic prospects.

Sharing the same view, expert Võ Trí Thành said the Government now can permit banks to either retain their profits or pay dividends in shares to raise capital, but he noted it was only a short-term measure.

The best solution in the long term was reducing State ownership at banks and allowing higher foreign holdings, Thành said. — VNS