Banks look for chances to raise foreign ownership threshold after EVFTA

25-Feb-2020 Intellasia | Tri Thuc Tre | 6:02 AM Print This Post

Vietnam Securities Securities (IVS) has just reported the EU-Vietnam Free Trade Agreement (EVFTA) agreement for Vietnamese banks.

Specifically, within five years from the effective date of the EVFTA Agreement, Vietnam has committed to giving favourable consideration to allowing EU credit institutions to raise foreign ownership to 49 percent of their charter capital in two joint stock commercial banks of Vietnam (not applicable to four joint stock commercial banks in which the State holds dominant shares are Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Vietnam Bank for Agriculture and Rural Development (Agribank).

IVS said that, in terms of investment, Vietnamese banks had a great attraction to international organisations. According to an expert from JPMorgan: “Vietnamese banks are an outstanding investment opportunity in Southeast Asia”.

Despite this, foreign investors face major legal barriers related to the ceiling of 30 percent ownership limit of foreign investors in Vietnamese banks. With this commitment from EVFTA, European banks currently have strong IB activities in Vietnam market (Deustch Bank, and Norges Bank) and Southeast Asia in general will be most interested.

When the limit is extended, the target bank will be able to access large capital, support to expand credit operations, especially in the context that banks are limited to the loan-to-deposit ratio (LDR) of 85 percent according to Circular 22/2019. Besides, this is also a great opportunity to access the effective management system from the capital bank as well as the opportunity for the target bank to reach the international market.

In fact, European banks have strengths in scale, experience as well as high governance standards (both are applying Basel III and proceeding to Basel IV). Therefore, the selection of partners must be based on the criteria to ensure investment returns (good profit margins), effective risk control, improve the image of the organisation (growth opportunities and strengths in the mining segment), especially meeting international standards in operational management (Basel II and Basel II, IFRS reports).

According to analysis of IVS, VPBank, VIB, MBBank, and Techcombank are currently the banks with the highest NIM. ACB, MBBank, and Techcombank are the three banks with the lowest bad debt ratio. In terms of governance, VIB and VPBank are the first two banks to complete the implementation of all three pillars of Basel II.

Meanwhile, according to Moody’s credit rating published in December 2019, Techcombank, MBBank, VPBank, VIB, and ACB are the joint stock commercial banks with the highest ratings (including BCA, partner risks, issuers and debt mobilisers) in 31 Vietnamese banks ranked.

Based on these analyses, IVS considers that VIB, VPBank, Techcombank, and ACB are the most potential candidates that could be considered for opening a foreign room at the proposal of a European bank. The chance of a break out is huge, however, this will only be a long-term story.

 


Category: Finance, Vietnam

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