HANOI —
Vietnamese officials said this week they would be willing to raise the ceilings on foreign ownership of banks once the restructuring of the banking sector stabilizes.
The officials would not commit to a timeline or a new percent cap. But one adviser, drawing on the experience of South Korea and Japan, said it could take Vietnam five to 10 years to clean up the banks, which have the highest bad debt ratio in Southeast Asia.
“We have to make our own system healthy again before we feel comfortable to open up,” said Hoang Xuan Hoa, economic director of the central economic committee that advises the government.
Speaking Tuesday at a seminar held by the Ministry of Planning and Investment and the European Chamber of Commerce in Vietnam, Hoa added, “We don’t have to wait till everything is OK before we open up for foreign investors, but it’s a process.”
The overall limit for foreign stakes in Vietnamese banks is 30 percent. Of that portion, foreign individuals are allowed no more than 5 percent, organizations 15 percent, and strategic investors 20 percent. Vietnam raised those levels in February, before which organizations could hold just 10 percent and strategic investors just 15 percent.
While open to an eventual hike in the foreign cap on top of the changes in February, Nguyen Manh Hung, a manager at the State Bank of Vietnam, cautioned against the risk of capricious investors. He said carpetbaggers might invest here but then pull out at the first sign of trouble in Vietnam, or in response to issues in their home markets, such as the current drawdown of quantitative easing in the United States.
“They may be in for a quick buck, and then withdraw capital anytime they see problems,” said Hung, who heads the SBV’s Banking Strategy Institute. “We need to look for long-term commitments from investors. We don’t want to pay the price of capital flight.”
Despite his reticence, Hung acknowledged “there’s a big need for capital to restructure the banking sector.”
Overhaul
Vietnam is in the process of a major banking overhaul, which is seen as necessary to lift the country out of its years-long slump in GDP growth. Officials have told banks to merge, divest from non-core businesses, resolve cross-ownership issues, and cut their burden of loans that go sour. To buy up some of those toxic loans, Vietnam formed an asset-management company in July.
“High non-performing loans continue to plague banks' balance sheets with various estimates ranging from the official number of 3.79 percent to Moody's estimate of 15 percent,” ANZ said in a statement this week.
Foreigners say they could help ease the load of bad debts at Vietnamese lenders, but their stakes are not high enough to justify pumping more resources into the struggling banks.
“Thirty percent doesn’t give us sufficient incentive or control to come in and resolve these issues,” EuroCham director Paul Jewell said.
Hung complained that foreign investors say they want to buy more shares in Vietnamese banks, yet have not made use of the allotments in place. But bankers responded that they haven’t been interested because the ceiling is too low. They said the government would have to let foreigners own 49 percent, or even 51 percent, of a bank to make the investment worthwhile.
At the end of the seminar, the president of the planning ministry’s Development Strategy Institute said he found the bankers’ arguments “persuasive.” Bui Tat Thang promised to take the recommendations to the government, saying, “I think the relationship between foreign ownership caps and participation in banks is very important.”
The officials would not commit to a timeline or a new percent cap. But one adviser, drawing on the experience of South Korea and Japan, said it could take Vietnam five to 10 years to clean up the banks, which have the highest bad debt ratio in Southeast Asia.
“We have to make our own system healthy again before we feel comfortable to open up,” said Hoang Xuan Hoa, economic director of the central economic committee that advises the government.
Speaking Tuesday at a seminar held by the Ministry of Planning and Investment and the European Chamber of Commerce in Vietnam, Hoa added, “We don’t have to wait till everything is OK before we open up for foreign investors, but it’s a process.”
The overall limit for foreign stakes in Vietnamese banks is 30 percent. Of that portion, foreign individuals are allowed no more than 5 percent, organizations 15 percent, and strategic investors 20 percent. Vietnam raised those levels in February, before which organizations could hold just 10 percent and strategic investors just 15 percent.
While open to an eventual hike in the foreign cap on top of the changes in February, Nguyen Manh Hung, a manager at the State Bank of Vietnam, cautioned against the risk of capricious investors. He said carpetbaggers might invest here but then pull out at the first sign of trouble in Vietnam, or in response to issues in their home markets, such as the current drawdown of quantitative easing in the United States.
“They may be in for a quick buck, and then withdraw capital anytime they see problems,” said Hung, who heads the SBV’s Banking Strategy Institute. “We need to look for long-term commitments from investors. We don’t want to pay the price of capital flight.”
Despite his reticence, Hung acknowledged “there’s a big need for capital to restructure the banking sector.”
Overhaul
Vietnam is in the process of a major banking overhaul, which is seen as necessary to lift the country out of its years-long slump in GDP growth. Officials have told banks to merge, divest from non-core businesses, resolve cross-ownership issues, and cut their burden of loans that go sour. To buy up some of those toxic loans, Vietnam formed an asset-management company in July.
“High non-performing loans continue to plague banks' balance sheets with various estimates ranging from the official number of 3.79 percent to Moody's estimate of 15 percent,” ANZ said in a statement this week.
Foreigners say they could help ease the load of bad debts at Vietnamese lenders, but their stakes are not high enough to justify pumping more resources into the struggling banks.
“Thirty percent doesn’t give us sufficient incentive or control to come in and resolve these issues,” EuroCham director Paul Jewell said.
Hung complained that foreign investors say they want to buy more shares in Vietnamese banks, yet have not made use of the allotments in place. But bankers responded that they haven’t been interested because the ceiling is too low. They said the government would have to let foreigners own 49 percent, or even 51 percent, of a bank to make the investment worthwhile.
At the end of the seminar, the president of the planning ministry’s Development Strategy Institute said he found the bankers’ arguments “persuasive.” Bui Tat Thang promised to take the recommendations to the government, saying, “I think the relationship between foreign ownership caps and participation in banks is very important.”
