Decree lifts foreign ownership cap

According to a decree issued late last week and to come into force on February 20, it is expected the decree will pave the way for foreign capital to flow into the banking sector.

Previously, the holding of a foreign investor was capped at 15%, or 20% for exceptions that had to be approved by the Prime Minister.

Under the decree, if not being a strategic partner, a foreign individual investor is allowed to own up to 5% of a credit institution's charter capital, while a foreign organisation's maximum holdings can be 15%.

However, the decree regulates that the total stakes of foreign investors in a local credit institution cannot exceed 30% of the charter's capital, lower than the expectation of many banks at 49%.

In case of poorly-performing credit institutions which need restructuring, the Prime Minister will decide on allowing the holdings of a foreign organisation or a foreign strategic investor which can exceed the limits, the decree says.

This will create the legal basis for the M&A in the banking sector, for example, the acquisition of a Singapore lender of Global Petro Bank (GPBank).

The State Bank of Vietnam's chief inspector, Nguyen Huu Nghia, told Dau Tu (Investment) on-line newspaper that the holdings of 20% is preferential to foreign investors, as the maximum holdings of local investors is only 15%.

Yet, an analyst with Bao Viet Securities, Nguyen Xuan Binh, the increase of maximum holding of a foreign strategic partner to 20% is still not very appealing to foreign investors, as they often want to purchase holdings of more than 30% – which will help them have a voice in management.

Binh was quoted by The Sai Gon Times as saying that the impact of the increase in foreign stakes in a credit institution won’t be too large.

The decree also set standards for a foreign investor to be eligible to become a strategic partner of a credit institution in Vietnam. One of the standards point out that the investor must have operated at least five years in the financial and banking sectors and have minimum total assets of US$20 billion in the year preceding to the registry for buying a stake.

In addition, if a foreign investor becomes a strategic partner of a credit institution, it will not be allowed that the foreign investor also owns more than 10% of charter capital in any other credit institution in Vietnam.