Foreign Credit Institutions Still Worry over Regulations on Purchasing Vietnamese Commercial Banks' Shares

The draft regulation on the purchase of Vietnamese commercial bank shares by foreign credit institutions has been released by the State Bank for comments from relevant ministries and sectors. However, its shortcomings on regulations on selling shares to foreign investors are making many credit institutions worried.

 

A series of foreign institutions such as HSBC, Standard Chartered and ANZhave brought domestic banks such as Techcombank, ACB and Sacombank big brands. Vietnam is going to join the WTO, which means that protection barriers by domestic credit institutions are to be lifted, therefore, domestic banks must take advantage of this opportunity to closely cooperate with foreign banks via stock transfers, making full use of their technologies and experiences to enhance competitiveness. However, othere opinions about selling shares to foreign investors are still controversial. Mr. Chaly Madan – Director General of Citibank assessed that Vietnamese banks’ size is small, therefore, if a bank owns charter capital of below VND1,000 billion, it should call on domestic sources to further mobilise capital.

 

Mr Dang Van Minh, President of Sacombank held that from Sacombank’s experience, domestic banks whose size is still small should consider carefully the selling of shares to foreign ones and pay attention to long-term commitments. For State management, Governor of the State Bank Le Duc Thuy emphasised: “Commercial banks’ selling shares to strategic investors looked at from the point of view of the State bank’s management is advantageous, which will produce a healthier market. The State bank encourages joint stock banks to attract foreign partners. In the coming time the State bank will support and help settle difficulties for banks who can reach agreements with foreign investors.

 

However, the draft carries many shortcomings. Section No.1 of Article No. 3 says that each foreign credit institution can own at most 10 per cent of charter capital of a Vietnamese commercial bank. For strategic investors, this rate may be 20 per cent. According to specialists, this regulation lacks a firm basis, because Vietnamese banks themselves could not define who a foreign strategic investor is.

 

Section No.2 of Article No. 3 that allows each foreign investor to hold total shares of no more than 30 per cent of a joint-stock commercial bank’s charter capital does not comply with real situations or international customs. Currently, there are only 3 out of 38 foreign banks that are strategic shareholders in Vietnamese banks. This number is modest while many joint-stock banks want to attract capital from foreign investors.

 

This regulation is in contrast with the Document No. 238/2005/TTg issued by the Prime Minister, allowing foreign investors to buy no more than 49 per cent of charter capital at companies posted on the stock market. Section No. 9 also requires that foreign credit institutions who buy shares in Vietnamese banks must fulfil conditions such as being among the world’s leading 500 banks, having experience in international banking activities, with their credit stability accredited by international rating organizations and making written commitments to support Vietnamese banks in terms of finance, technology and administration of banking operations. These requirements are too high, and prevent Vietnamese small and medium banks that look forward to innovating from attracting capital from foreign credit institutions.

 

It was proposed that for State-owned commercial banks, the limit of charter capital owned by foreign investors should be 35 per cent, of which each investor regardless of whether it is a credit institution or an investment fund may hold at most 25 per cent. For joint-stock banks, these rates would be 49 per cent and 30 per cent, respectively.