It’s not a coincident that all three biggest joint stock commercial banks have complained and proposed to the government to loosen the ownership ratio (room) and remove other issues in selling capital to foreign investors.
Desire for more room to speed up shares selling
All are very “thirsty” for capital, and are having good opportunities with the interest of many foreign investors in the banking sector, but the three State-owned commercial banks including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank), and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), each has a different problem causing stuck in all the transactions.
Preparing for the sale of 7.73 percent of shares to government of Singapore Investment Corporation (GIC) since 2016, but by the end of 2018, Vietcombank only completed selling three percent of its capital to foreign investors. Compared to the 10 percent “room” approved by the government, Vietcombank still has seven percent for the next private issuance.
Therefore, despite collecting 6.2 trillion dong from this successful offering, Nghiem Xuan Thanh, Vietcombank’s Chair, said that raising capital with Vietcombank is still an urgent demand to meet growth requirements in the near future. Vietcombank’s Chair proposed that the government allow this bank to loosen the foreign ownership ratio.
However, Vietinbank is the bank that need room extension the most. Currently, the foreign ownership portion in this bank has been used up (at 30 percent), while the State ownership rate has also reached the minimum level of 65 percent as prescribed. In the context of having no feasible fund raising measure, VietinBank’s solution is to increase capital in the short term is to persuade the Ministry of Finance to accept for this bank paying share dividends to raise capital. After 2020, the solution expected by VietinBank is to open room for foreign investors.
Previously, Le Duc Tho, Chair of VietinBank, said that this bank is proposing to the State Bank of Vietnam (SBV) to be selected as one of the State-owned banks to pilot reducing State ownership to 51 percent with the roadmap after 2020.
Meanwhile, BIDV seems to be the most relaxing bank with the capital raising issue, when the available room for foreign capital is the full 30 percent limit. However, the strict regulations on selling State capital to foreign investors are making it impossible for the bank to complete the 15 percent capital sale deal with Keb Hana (Korea).
Phan Duc Tu, Chair of BIDV’s Board of directors, recently proposed the government remove the conditions of capital constraints with foreign investors to speed up the completion of this deal.
According to the leaders of State-owned commercial banks, besides stipulating that the selling price for foreign investors must not be lower than the market price, it is regulated that investors must hold shares at least one year before transfer making it difficult to negotiate with big investors.
Should the room be raised to 35 percent?
Dr Vo Tri Thanh, an economic expert, said that this year, in the context that the need to raise capital is very urgent and tough, the Ministry of Finance would accept for State-owned commercial banks to pay share dividends to raise capital according to a certain percentage, instead of paying cash dividends to the budget as before. However, this is only a temporary solution. In the long term, the most likely way to increase capital is to divest State capital, and expand room to sell to foreign investors.
According to the Vietnam Banking Industry Development Strategy until 2025 and the orientation to 2030 approved by the prime minister in August 2018, the State’s ownership rate in the above three commercial banks is 65 percent. In the period of 2021-2025, this rate can be reduced to 51 percent.
Currently, foreign ownership room in Vietnamese banks is 30 percent. Experts said that in the context of strict budgets, the government can loosen foreign investors’ room to 35 percent, and then increase to 40-49 percent according to the roadmap.
Dr Can Van Luc, an economic expert, said that the bright prospect of the Vietnam economy made the banking sector more interested by foreign investors. In the context of integration, it is necessary to quickly remove obstacles in the approval stages to speed up the process of selling capital.
In fact, the current ownership rate only helps foreign investors to participate as a financial investment, but has not contributed much in terms of management and administration to the banks. However, in terms of financial investment, many Vietnamese banks have recently brought to investors good profitability.
So, according to Dr Vo Tri Thanh, in the context that Vietnam is still cautious about national monetary security, and has not opened up the banking sector, the government may consider loosening room for foreign investors by issuing gold shares to investors (the types of shares that investors enjoy all benefits, except for voting rights).
