Vietnam is changing rules to allow foreign investors bigger stakes in local banks in its latest move to rebuild a financial sector battered by bad debt, according to the country's prime minister.
The government will soon issue a decree to permit foreigners to buy stakes "above the current 30 percent ceiling", Prime Minister Nguyen Tan Dung was quoted as saying in a government statement late on Monday. He did not elaborate.
The 30-percent cap covers total foreign shareholdings and limits a single foreign strategic investor to a one-fifth stake.
That has proved unattractive for many foreign lenders which see little incentive in a minority share and limited control of banks requiring restructuring and recapitalisation.
"At least the policy would help expand the market because with the current 30-percent limit for foreign ownership, Vietnamese banks will be out of sight of financial investors," said Trinh Hoai Giang of Ho Chi Minh City Securities.
Dung made the comments to Nobuyuki Hirano, president of Japan's Bank of Tokyo-Mitsubishi UFJ, which owns 19.73 percent of VietinBank. It is among only six foreign lenders that are strategic investors in Vietnamese banks.
Vietnam is recovering from a toxic debt headache and real estate slump caused by unrestrained lending and costly investments by state-run firms in non-core areas. Its non-performing loans (NPL) ratios have been among Asia's highest.
Moves to free-up the banking sector come as Vietnam pursues a broad but protracted programme of liberal reforms, including partial state-sector privatisation and greater room for foreign equities investment, as interest grows in one of Asia's fastest growing economies, from clothing and high-tech manufacturing to retail and agribusiness.
ANZ last week maintained its 6.5 percent forecast for GDP growth in 2015 and 2016.
The State Bank of Vietnam (SBV) has moved to consolidate the banking sector by increasing credit growth, steering mergers and acquisitions and boosting capital for its asset management firm to buy bad debt.
The SBV has overseen four mergers and two acquisitions of banks since 2012, and expects more this year.
Nguyen Thuy Duong, who handles financial services for Ernst & Young in Vietnam, said test cases with foreign strategic partners had proved successful.
"Foreign investors indeed have helped Vietnamese banks a lot, changing them inside out," Duong said. "They are willing to wait as they know there will be time when they can own more."