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Feb 21, 2020 / 09:37

Trade deals facilitate foreign investors in Vietnamese banks

Experts believed European investors would eye Vietnamese banks which have some good criteria.

It has been easier for foreign investors to pour into Vietnamese banks under the country’s commitments in free trade agreements.

Under the EU-Vietnam Free Trade Agreement (EVFTA) ratified recently by the European Parliament, Vietnam and the EU have committed to facilitate the investment environment for businesses of the two sides, in which the Southeast Asian country will allow the investors from the bloc to hold up to 49% of registered capital at two Vietnamese joint stock commercial banks.

 Techcombank is expected to be the target of European investors.

According to Vietnam’s existing legal regulations, foreign ownership in a commercial bank is capped at 30%.

The offer will be valid for five years after the pact takes effect. After the five-year deadline, the offer expires, and any proposals will be rejected.

Experts believed European investors would eye Vietnamese banks which have some good criteria, such as clearing bad debts, focusing on core credit activities and meeting the Vietnamese central bank’s standards.

In the list of top ten joint stock banks released last year, Techcombank, VPBank, and ACB took the leading positions, followed by TPBank, SHB, HDBank, Sacombank, VIB, MSB and SCB.
Besides the EVFTA, other free trade pacts, including the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), have also offered more opportunities for foreign investors to pour in Vietnamese banks.

According to banking expert Can Van Luc, the CPTPP and other trade deals signal to the world that Vietnam is ready to join a level playing field on global markets, and investors can find opportunities in the country’s banking sector. The government is also looking to divestment from some major lenders, and scores of private banks are also preparing for their public listing.
Among CPTPP members, Vietnam’s banking sector is among the least developed, which means ample room for funding from overseas banks, Luc said.

Appealing market

Foreign investors have also shown big interest in the Vietnamese banking and financial market in recent years, given the country’s population of nearly 100 million with only 30% of them having access to banking services.

Banking expert Nguyen Tri Hieu said while it was hard for investors to have wholly foreign owned banks in Vietnam, especially after the government stopped issuing new licenses for the establishment of wholly-owned foreign banks in the country, the best option for foreign investors to enter the Vietnamese market now was through mergers and acquisitions (M&A) with local banks and financial firms.

In the current context, the most common way for foreign investors to enter the Vietnamese financial market is to acquire stakes in local banks or buy financial companies instead of establishing new ones, Hieu said, adding M&A would also help reduce many legal and procedural difficulties for foreign investors.

Therefore, instead of paying a huge amount and spending a lot of time establishing a new company, M&A with local partners has more advantages, especially when local banks are also expecting to raise capital from foreign shareholders to meet the central bank’s stricter capital requirements due to the underdevelopment of the domestic capital market, Hieu explained.
As for Vietnamese banks, experts said that the country’s integrated market upon joining the CPTPP and EVFTA means good business for banks.

Oliver Massmann, general director of law firm Duane Morris, noted that the trade deal will stimulate domestic reforms in the financial sector, making Vietnam a great investment environment for foreign financial institutions.

Meanwhile, Lindsey Ice, senior economist from Spanish-based FocusEconomics, said that European investors’ entry into Vietnamese service markets, including banking, would help modernize these markets and improve service quality.