The transfer of ‘zero dong’ banks to foreign investors will contribute to speeding up the restructuring of Vietnam’s banking system towards sustainable development and consistent with the integration trend.
In the recent report to the National Assembly delegates, the State Bank of Vietnam (SBV) said that until now, this agency had completed and submitted to the prime minister the plan to restructure Ocean Commercial One Member Limited Liability Bank (OceanBank) in the direction of transfer to foreign investor. The restructuring plan of Construction Commercial One Member Limited Liability Bank (Construction Bank-CBBank), Global Petro Sole Member Limited Commercial Bank (GPBank), DongA Joint Stock Commercial Bank (DongA Bank) was being urgently completed to submit to competent authorities for approval in accordance with the law.
Those are very happy news that the compulsory purchase and restructuring process of these banks are on the right track and “zero dong” banks are gradually returning to their value.
In the meeting with Vuong Dinh Hue, deputy prime minister of Vietnam, at the end of March 2019, Nobiru Adachi, Chief Executive Officer of J Trust Group (Japan), expressed his intention to participate in restructuring CBBank towards bringing this bank into a gateway for Vietnamese enterprises to cooperate and invest with Japanese enterprises. Welcoming this intention of J Trust, deputy prime minister Vuong Dinh Hue asked the Group to discuss with CBBank and SBV about the specific plan.On the basis of that, SBV submitted to the government and the prime minister for early consider decide.
In the past, there were also some foreign investors who learned, raised the issue, even negotiated to buy back Vietnam’s weak banks, but there was no successful deal. For example, UOB Group also negotiated to buy back GPBank, but the deal was not completed and eventually GPBank was also in the position of being bought by SBV.
Looking back at the process of restructuring these banks, since the decision to buy compulsory with value of “zero dong”, it has seen all the successes from a bold policy of SBV. Because the restructuring of three “zero dong” banks was a difficult, complicated, unprecedented process, it must closely coordinate and consult with many ministries and relevant agencies. Especially with the current financial situation of banks, finding investors with financial capacity and governance capacity to handle and restructure these banks encountered many difficulties and depended on the results of negotiations with investors.
According to experts, despite acknowledging the SBV’s efforts to revive these banks, it was time for SBV to transfer these three banks to foreign investors to speed up the restructuring process of these banks.
Not only with “zero dong” banks, but many other weak credit institutions are also in the sights of foreign investors. Recently, Srisawad Corporation (Thailand) proposed to pay Vietnam Bank for Agriculture and Rural Development (Agribank) the amount of 523 billion dong to own the entire capital of Agribank Finance Leasing Company I (ALC I).
All of these evidence showed that buying weak domestic credit institutions would help foreign investors have a chance to penetrate deep into Vietnam’s financial and banking market.
Currently, foreign financial institutions are present in Vietnam mainly in the form of: Opening a bank with 100 percent foreign capital, contributing capital and joint ventures with domestic banks, opening branches and opening representative offices.
However, opening a 100 percent subsidiary bank or opening branches and representative offices all have the same disadvantage is time consuming, sparse transaction point network. Therefore, although the brand and financial potential are very strong, the market shares of foreign banks are quite modest and grow slowly. Not only that, deputy prime minister Vuong Dinh Hue stated at the M&A forum in 2018: “In the near future, the government will be very limited or may not grant more licenses to 100 percent foreign-owned banks.”
Investment in the form of capital contribution and joint venture with domestic banks also has many limitations. According to the Decree 01/2014/ND-CP of the government, the share ownership ratio of a foreign strategic investor must not exceed 20 percent of the charter capital of a Vietnamese credit institution. The total shareholding of foreign investors must not exceed 30 percent of the charter capital of a Vietnamese commercial bank. A bank financial expert analysed that such regulations prevented foreign investors from contributing capital to joint ventures with local banks, because they wanted more rights and even control coordinate as well. In this context, the best solution was to buy a weak domestic bank to restructure towards sustainable development. This would help foreign investors to take advantage of the existing network, people, and financial strength and advanced management skills to revive these weak banks.
For state managers and the whole banking system, it was also beneficial to quickly strengthen the system in the context of limited domestic resources, especially when the National Assembly decided not to use the budget to restructure weak banks and handle bad debts.
Therefore, the Scheme to restructure credit institutions and handle bad debts in 2016-2020 and also Banking Development Strategy to 2025 oriented to 2030 were all aimed to complete the regulation in the direction of increasing the ownership ratio of foreign investors for credit institutions to enhance mobilisation of resources of foreign investors; and at the same time encourage foreign investors to participate in handling weak credit institutions.
There were also concerns that foreign credit institutions would acquire weak banks, which created greater competitive pressure for domestic banks, pushing them to risk losing at home. However, this concern had not any basis, because foreign banks deeply involved in restructuring weak banks would quickly dispel the danger to the system. If the pressure of competition was greater, it was understandable, and the beneficiary was the customer.
