Vietnam will allow foreign investors to buy bigger stakes in its banks from next month, a move that could give some relief to its crippling debt problem but is short of the reforms experts say are needed to strengthen its economy.
A government decree announced yesterday said that from February 20, foreign banks could be allowed to buy majority stakes in domestic lenders considered weak, and marginally greater shares than at present in stronger banks. It did not stipulate what constituted a "weak" bank.
The move is one of a series of incremental steps taken by Vietnam's communist government to revive a once-thriving economy that has been stuck in a quagmire, in large part due to high levels of toxic debt and tight lending that has hurt retail growth and led to bankruptcies of tens of thousands of small businesses.
The State Bank of Vietnam (SBV) set up an asset management firm last year to buy bad debt from lenders in return for bonds in an effort to tackle Southeast Asia's worst non-performing loan (NPL) ratio.
However, what the central bank's firm does with the NPLs it buys remains unclear.
Independent economists estimate the NPL ratio to be in double digits and say the problem requires a more comprehensive solution, including more transparency and liberalisation of the banking sector to lure foreign expertise and capital.
According to the new decree, a single "strategic foreign investor" will be allowed a maximum 20 per cent of a Vietnamese bank without government approval, up from 15 per cent now. The 30 per cent cap on total foreign ownership remains in place.
It would raise the foreign ownership limit beyond the 30 per cent if an overseas institutional investor wanted to buy into weak banks, it said, without elaborating. An SBV report to the legislature in November said there were 11 weak banks in Vietnam, although it said eight had been "restructured".
Bui Kien Thanh, an independent economist and former government adviser, said the changes would have limited appeal to foreigners because stakes permitted in stronger banks were too small and the extent of the NPL problem in Vietnam was still unclear.
"It doesn't mean anything to foreign investors as they would still only play a passive role in a bank, they don't have right to decide anything," Thanh said.
"The chance to buy a 100 per cent share of a weak bank is also very difficult as no one wants to pay a lot of money to buy a bank with high rates of non-performing loans … the biggest barrier is bad debts."
Overseas banks are among seven foreign strategic investors that have so far bought into about 10 Vietnamese banks among the nearly 40 nationwide. Among the foreign banks with stakes in Vietnamese ones are: HSBC in Techcombank; Commonwealth Bank of Australia in VIB; and United Overseas Bank of Singapore in Phuong Nam. In those cases, the foreign bank got government approval to hold 20 per cent.
The new decree outlined seven criteria to qualify a bank as a foreign strategic investor, including at least US$20 billion in assets in the year before buying a stake.