Allowing increased foreign ownership of local banks will help sector restructure, modernize
A customer makes US dollar deposit in a bank in Ho Chi Minh City
But it will not be easy to persuade foreign investors to buy into weak banks even if the foreign ownership cap is increased from the current 30 percent, Can Van Luc, senior advisor to the chairman of the state-owned Bank for Investment and Development of Vietnam, tells Vietweek.
Vietweek: The central bank plans to increase the ownership limit for foreign investors in banks to boost restructuring of the troubled banking system. How should we raise the cap?
Can Van Luc: Vietnam currently allows a foreign investor to own 20 percent of a bank, and total non-Vietnamese ownership in a bank is currently capped at 30 percent.
In fact, most Vietnamese banks are small, so the ownership cap of 30 percent is not really attractive to foreign investors. Foreign investors want the government to raise the cap to increase their right in bank management. The requirement is legitimate.
So we should raise the ownership of an individual foreign investor to 30 percent, and that of all foreign investors to 49 percent, which is equal to the cap in other businesses.
With the cap, I think, we can attract foreign investors to make use of their funds and management experience. But we can still control our banking system, preventing the risk of local banks being taken over.
Many other countries have completely opened the door to foreign investors to [own] their banks.
Moreover, we also have to open the doors of our banking market more when we accede to the ASEAN Economic Community in 2015. Thus, the expansion is reasonable.
Is ownership of below 50 percent attractive for foreign investors as they cannot influence business strategies?
Some economists say the government should allow foreign investors to buy 100 percent stake in a local bank. But I think it is not reasonable. Foreign banks would prefer to set up their own locally incorporated entity with 100 percent foreign ownership to buying 100 percent stake in a weak local bank as they can manage their banks' operation in a more active manner and will not have to face the risks left behind by local banks bought by them.
The price of Vietnamese banks is attractive as their P/E is low compared to that of banks in other regional countries. However, investors who buy the banks will have to face the problems left behind by them.
CAN LUC TIEN, SENIOR ADVISOR TO THE CHAIRMAN OF BIDV
Even if we allow foreign investors to buy 100 percent stake in our banks, they will not desire to do it amid the current global economic downturn. So we should raise the cap to the levels I mentioned since that could raise the attractiveness of the banking market to foreign investors and will be in line with our roadmap for joining the ASEAN Economic Community in 2015.
So raising the cap [to the levels I mentioned] should be sufficient to both raise the attractiveness of the banking market to investors and be in line with our roadmap for joining the ASEAN Economic Community in 2015.
We need funds to restructure weak banks. Should we allow higher foreign ownership in only the weak banks?
We can have two plans: the first to hike the foreign ownership cap in weak banks first and in good banks later; the second to allow higher foreign ownership limits in both weak and good banks at once. The government will decide that.
However, I think there will be no problem if we raise the foreign ownership limit in both weak and good banks at the same time. Many ASEAN countries have done it. For example, foreign investors can buy 100 percent stakes in banks in Cambodia and the Philippines.
Greater participation by foreign investors can help Vietnamese banks get access to more funds, improve their corporate management and technology, and increase transparency as information will be strictly supervised. All these things will help accelerate the restructure of the local banking system.
Can Vietnamese banks restructure without the participation of foreign investors?
It is difficult because our resources are limited and we have to deal with many issues like resolving bad debts, reducing high stockpiles of goods, reviving the property market, and restructuring the economy. So we need to attract more foreign investment to resolve the issue. Other countries also do it.
How do you assess the ability of Vietnamese banks to attract foreign investment compared to their peers in other ASEAN member countries?
Vietnam's financial and banking market is considered attractive to foreign investors and has huge potential for development as only around 21 percent of people have bank accounts. The rate in China is 60 percent.
The price of Vietnamese banks is attractive as their P/E (price/earnings) is low compared to that of banks in other regional countries. However, foreign investors who buy the banks will have to face the problems left behind by them. Nobody wants to sell 100 percent stake in good banks. They want to do it only in weak banks, so investors will consider carefully when buying the banks.
We have to increase the attractiveness of the sector to attract foreign investors as many of them have shifted to Indonesia and even Myanmar. Our banks are small, so the foreign ownership cap of 30-40 percent makes the sector unattractive, while the transparency in Vietnamese banks is not as high as in banks in regional countries.
According to some funds, the attractiveness of the finance and banking sector now ranks only sixth or seventh after other sectors like property, education, and health.
In addition to increasing the foreign ownership cap, we need to improve our business environment, which is worsening because of economic instability, complicated administrative procedures, and poor infrastructure, according to some foreign investors.
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