Vietnam limits foreign investment in state banks

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Vietnam has added new restrictions on foreign investors in the country's state-owned banks and imposed new limits on investors in banks being privatized in a move an analyst said would help protect state assets.

Foreign investors seeking to buy 15 percent or more of a Vietnamese state-owned bank must have total assets of at least $20 billion in the year before they buy a stake, the central bank said in a circular released late on Tuesday.

"The government wants to protect state assets because state-run banks have huge assets, many of which are not profitable now," said a Vietnamese analyst who declined to be identified by name.

The fear is that the state may lose control over assets that while unprofitable, it has an interest in keeping, said the analyst, who is based in Hanoi and tracks Vietnam's banking sector.

Foreign investment is considered strategic in the banking sector at the 15 percent level and foreign holdings in Vietnamese banks can be raised to 20 percent only with explicit government approval.

The government also restricted investments in state-owned banks currently being privatized. Strategic, major or founding investors in other banks in Vietnam will not be allowed to exceed the strategic 15 percent level in state-owned banks being privatized.

The new rules were distributed in a State Bank of Vietnam circular issued on April 22 that will take effect on June 1.

"Now that the market has fallen and shares have become cheaper, any foreign bank can jump in and seek to buy a domestic bank at a low price, which will hurt the value of the state assets," the analyst said, referring to VietinBank and Vietcombank .

Shares below debut prices

The Ho Chi Minh Stock Exchange , Vietnam's main exchange where the two are listed, has fallen 3.2 percent so far this year compared to a 2 percent decline last year.

VietinBank shares closed up 1.1 percent at VND28,500 ($1.36) each on Wednesday, down 29 percent from its debut in July 2009. Vietcombank shares rose 0.7 percent to VND28,300, having fallen nearly 53 percent from their June 2009 debut.

So far three foreign banks, HSBC Holdings Plc , Malayan Banking Bhd (Maybank) and Societe Generale each owns 20 percent in a Vietnamese bank.

Another six foreign banks each own around 15 percent in six domestic lenders, but all nine Vietnamese banks are partly private and have assets smaller than those of state-owned banks.

Vietnam has five banks now fully owned by the state: Agribank, BIDV, the Mekong Delta Housing Bank (MHB), the Vietnam Development Bank and the Vietnam Bank for Social Policies.

Hanoi plans to privatize Agribank, BIDV and MHB, but has yet to set timetables. The government has no plans yet to sell stakes in the last two banks, which lend to the poor or fund major state development projects.

Mekong Housing Bank will sell 31.9 percent of its registered capital in an initial public offering, the country's central bank also said on Wednesday.

The government had already approved the Ho Chi Minh City-based lender's "equitization" plan, under which the state would retain a 68.1 percent stake, the State Bank of Vietnam said.

The Vietnamese government uses the term "equitization" to refer to the partial privatization of state-owned companies and banks.

The statement did not give a timeframe for the IPO.

MHB has 4.51 trillion dong in registered capital, the statement said.

Of the 31.9 percent stake being offered, MHB will sell 14.34 percent in a domestic auction, 0.56 percent to its employees and reserve 2 percent for the state-run trade union, the statement said.

The lender will offer the remaining 15 percent stake to a strategic partner, the central bank said.

VietinBank and Vietcombank, which had been fully owned by the state, now have shares listed on the Ho Chi Minh Stock Exchange, but neither has a strategic foreign investor.

Hanoi-based VietinBank, or the Vietnam Joint Stock Commercial Bank for Industry and Trade, is 10 percent owned by the International Finance Corporation.

The bank aimed to conclude talks to sell a 15 percent stake to Canada's Bank of Nova Scotia in the second quarter of 2011, its chairman, Pham Huy Hung, was quoted as saying in a state-run newspaper in December.

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