Central bank pushes for rule alignments
Central bank pushes for rule alignments
The State Bank of Vietnam last week sought amendments and supplements to rules relating to the purchase of shares in Vietnamese credit institutions by foreign investors.
According to the central bank (SBV), Decree No.01/2014/ND-CP was based on the three laws regarding credit institutions, securities, and investment, which have all now been updated. “Decree 01, therefore, needs to be reviewed to be consistent with current regulations, particularly those related to foreign investors purchasing shares in joint-stock companies here,” the SBV said.
It also pointed out that the Law on Credit Institutions has been amended to include the right of the transferee to “sell or issue shares of the credit institution to foreign investors” in accordance with the approved transfer plan. However, Decree 01 has not yet provided guidance on the right of the transferee.
As per the recent proposal, the government will decide the maximum foreign ownership limit (FOL) in credit institutions receiving mandatory transfers. This ratio is allowed to exceed 30 per cent but no more than 49 per cent of the charter capital of the receiving bank, except for banks with state ownership exceeding 50 per cent.
The SBV expects this new regulation to create conditions for credit institutions receiving transfers to enhance their financial capacity through attracting more foreign investment and increasing equity.
“These banks can in turn improve management capacity, innovate technology, and provide better support for transferred credit institutions. This will contribute to the successful implementation of the mandatory transfer plan, stabilise the banking and financial system, and stabilise the economy and society,” the SBV said.
Meanwhile, the draft maintains regulations that a foreign organisation may not own more than 15 per cent, a foreign strategic investor may not own more than 20 per cent, and a foreign investor and related persons may not own more than 20 per cent of the charter capital of a Vietnamese enterprise. The total share ownership of foreign investors may not exceed 30 per cent of the charter capital of a commercial bank.
Currently, four commercial banks – Vietcombank, MB, VPBank and HDBank – are in the pipeline to undergo mandatory transfer of ownership to the weaker lenders of DongABank, CBBank, OceanBank and GPBank. Among these, Vietcombank, which is over 50 per cent state-owned, will not be eligible to increase foreign ownership.
Two of the other commercial banks have suggested an increase in the FOL to 49 per cent. The SBV believes that adjusting the limit for these banks will not have too much of an impact on the banking system, as the two lenders in question account for nearly 6.6 per cent of total assets, 5.26 per cent of deposit market share, and nearly 5.5 per cent of lending market share of the entire joint-stock banking system as of June 2022.
Some experts assessed that this is a sound decision. Nguyen The Minh, head of research and development division at Yuanta Securities, said that there would inevitably be an impact on the parent bank’s capital adequacy ratio when taking over a weak bank. “This can even result in the parent bank struggling to achieve the capital adequacy standard under Basel II standards,” Minh said.
Therefore, the prerequisite for ensuring the health of the bank is that the parent bank must increase its capital. “The question remains as to where the funds for such a capital increase will come from. Certainly, the bank will not seek out retail investors, but will have to target strategic foreign investors,” Minh said.
“The challenge is to attract these foreign giants by offering a sufficiently attractive ownership ratio that ensures their interests are safeguarded. Hence, increasing the maximum FOL to 49 per cent is the most powerful magnet to attract them.”
Meanwhile, at the end of March, VPBank announced an agreement to sell 15 per cent to Sumitomo Mitsui Banking Corporation (SMBC). Following the deal, SMBC Group has become a strategic investor in VPBank. The investment from SMBC will bring in $1.6 billion in Tier 1 capital for VPBank, equivalent to a price of $1.35 per share, raising VPBank’s total equity from $4.5 billion to approximately $6.1 billion.
According to VPBank’s 2023 AGM, the bank plans to propose a private placement to foreign strategic investors to increase its charter capital and raise the total FOL in VPBank to a maximum of 30 per cent of charter capital.
Data from Vietnam Securities Depository shows that, as of March 30, VPBank’s limit is currently at a maximum of 17.64 per cent, with only about 0.002 per cent of room for foreign ownership remaining.
HDBank’s FOL is currently at a maximum of 20 per cent, with 1.09 per cent of room for foreign investors remaining. The maximum limit for investors in MSB is 30 per cent, with approximately 0.03 per cent of the limit unfilled. Meanwhile, MB has fully filled its FOL of 23.23 per cent.
