Vietnam will allow foreign investors to take bigger stakes in the nation’s lenders in a bid to bolster the ailing banking system.
The limit for foreign so-called strategic investors will be increased to 20 percent from 15 percent, while the cap for total foreign holdings at any local bank remains at 30 percent, according to a statement posted on the government website late yesterday. The prime minister can lift the limits in special cases to help weak banks “restructure and ensure their safety,” according to the decree, which takes effect Feb. 20.
Bank shares rose today on speculation that the steps will help Prime Minister Nguyen Tan Dung’s government reshape the financial system, which is burdened with the highest rate of bad debt in Southeast Asia. Vietnam’s undercapitalized banks are grappling with structural weaknesses that urgently need fixing, according to the International Monetary Fund.
“This is a very important decision and a great step forward,” Alan Pham, Ho Chi Minh City-based chief economist at VinaCapital Group, the nation’s largest fund manager, said by phone. “This decision will allow foreign investors to come and help local banks to recapitalize and restructure themselves.”
The benchmark VN Index of stocks climbed 0.5 percent at 1:11 p.m. local time, heading for the highest close since June 13. Vietnam Joint-Stock Commercial Bank for Industry and Trade gained 1.9 percent, and Joint-Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank, rose 2.2 percent.
The stake limit for a non-strategic foreign institutional investor will be increased to 15 percent from the current 10 percent, according to the decree. A foreign strategic investor needs to make certain commitments including establishing a long-term partnership with a local bank, according to the decree.
Under the current law, a foreign strategic investor can hold a 20 percent stake if the prime minister approves it.
Separately, Dung is considering raising foreign ownership caps at listed companies. A proposal calls for lifting overseas investors’ holdings of voting shares in some industries to a maximum 60 percent from 49 percent, Nguyen Son, head of market development at the State Securities Commission, said Nov. 14.
There are about 20 companies whose foreign ownership is at the 49 percent limit, according to Ho Chi Minh City-based ACB Securities Co.
Vietnam’s government forecasts the economy will grow 5.8 percent this year after a 5.42 percent expansion in 2013. That would be a seventh straight year of growth below 7 percent. In another attempt to boost economic expansion, the central bank cut a policy rate last July, after it devalued the currency in the previous month to improve the balance of payments.
Policy makers set up an asset-management company to buy soured loans from banks in July. VAMC, as the entity is known, may purchase as much as 150 trillion dong ($7.1 billion) by the end of 2014, central bank Governor Nguyen Van Binh said in December.