Foreign ownership cap in Vietnamese banks should be considered carefully to prevent a wholesale takeover, experts warn.
“For weak credit institutions, increasing capital is quite necessary to help them deal with bad debts and increase their liquidity. Because of the gloomy domestic capital market, seeking more foreign funds is a reasonable step,” said former central bank governor Cao Sy Kiem.
But he noted that banks face the risk of being taken over if foreign investors hold large stakes.
“With their deep pockets, good management, advanced technology, and qualified staff, foreign investors could take control of banks. This is very dangerous,” he warns.
Foreign investors, amid the economic slowdown and bear market, could purchase massive stakes in local banks at low prices and then resell to local investors at higher prices when the economy and market rebound, he explained.
The governor of the State Bank of Vietnam, Nguyen Van Binh, said increasing the rate up to which foreign investors can buy into Vietnamese banks would help restructure the banking system, and the central bank has recommended this.
But he admitted that the issue should be carefully considered to ensure it does not harm the nation’s interests.
Vietnam allows foreign investors to hold a maximum of 30 percent in its banks, pursuant to its World Trade Organization commitments.
Bad debts were estimated at 8.6 percent of total loans at the end of March.
The ownership cap would not be important when banks get their act together, Kiem said.
An economist said foreign investors are interested in the Vietnamese banking industry since they perceive an opportunity to take over a leading lender. But they may be reluctant if the restructure of the banking system is too tardy and implemented ineffectively.
Vietnam is in the process of restructuring its banking system, with two mergers having taken place since the end of last year.
Credit rating agency Fitch said last month that Vietnamese banks are still vulnerable due to the high credit-to-GDP ratio relative to many emerging markets.
“This, together with broader macroeconomic vulnerabilities often found in developing markets, makes the financial system particularly sensitive to shocks,” it said.
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