The government should increase the foreign ownership ratio for overseas investors at state-owned banks to facilitate raising capital as it is the best way to help banks meet the central bank’s capital regulations on Basel II standards and enhance their competitiveness, experts suggested.
VietinBank’s credit growth last year was low due to its capital hike failure
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VietinBank’s 2018 pre-tax profit dropped sharply to VND6.8 trillion (US$291.85 million) due to its low credit growth of only 6 percent in the wake of the capital hike failure.
Currently, the foreign ownership at VietinBank reaches the 30-percent cap as regulated by the law so that it is tough for the bank to deal with the capital hike problem this year.
To deal with the problem, Tho suggested that the central bank select VietinBank to be among those banks to have state holding ratio reduced to 51 percent.
The proposal was also mentioned by BIDV Chairman Phan Duc Tu, who asked the government to remove obstacles related to foreign holdings for BIDV and help it sell shares to foreign investors.
BIDV hasn’t so far completed a plan to sell 15 percent of its charter capital to South Korea’s KEB Hana Bank due to strict regulations. According to banks, they are facing difficulties in negotiating with big investors as the current regulations forbid banks from selling their shares lower than the market price, and investors have to hold the shares for a year after their purchase.
Despite gaining VND6.2 trillion (US$266 million) from selling a 3 percent stake to Singapore’s GIC and Japan’s Mizuho Bank recently, Vietcombank’s Chairman Nghiem Xuan Thanh also asked the government to increase the foreign ratio limit to support the bank’s capital growth, saying it was an urgent task.
Analysts at Bao Viet Securities Company (BVSC) said that to meet the Basel II standards by 2020 as planned by the central bank, listed commercial banks must increase capital by VND237 trillion (US$10 billion) in 2018-2019 if they wanted permission for credit growth of 14-15 percent.
However, Le Duc Thuy, former chairman of the National Financial Supervisory Commission, said that capital in banks had increased by only US$2 billion over the last two years.
Long-term solution
Experts have so far also agreed with the banks’ proposal, saying the measure is necessary and feasible as the local banks’ shares are luring foreign investors.
According to expert Vo Tri Thanh, the government now can permit banks to either retain their profits or pay dividends in shares rather than cash this year as capital demand at banks is in a dire need, but he noted it is only a short-term measure.
“The best solution in the long term is reducing state ownership at banks and allowing higher foreign holdings,” Thanh said.
He also suggested if the government is still cautious about the national financial security and doesn’t want to open the banking industry quite widely, it can consider increasing the foreign holding ratio by issuing ‘golden shares’ for foreign investors. It means the investors can get all rights with the shares, except the voting right.
In another measure, experts suggested the government currently can increase the foreign ownership limit at banks by 5 percentage points to 35 percent. Then, the rate will be continuously adjusted up to 51 percent in 2021-2025 as a government’s roadmap approved in August last year.
Expert Can Van Luc said the measure should be taken now as foreign investors are showing their keenness in Vietnam’s banks thanks to the country’s positive economic prospects.
