Vietnam considers limits on foreign ownership ratio in fintechs

19-Jul-2019 Intellasia | Vietnamnet | 6:02 AM Print This Post

Policymakers believe that the limitation on the foreign ownership ratio in Vietnam’s fintechs would help ensure transparency in payment activities, thus facilitating the development of companies.

The Vietnam Association of Foreign Invested Enterprises (VAFIEs) has shown its concern over the government’s intention to set a limit on foreign ownership ratio in fintechs.

The draft of the decree to replace Decree No 101/2012 says that the ownership ratio must not be higher than 30 percent.

The allowed foreign ownership ratio in payment firms still has not been set by SBV.

The capital ratios being held by foreign investors in some institutions licensed by SBV to provide intermediary payment services are higher than 51 percent.

In VNPT EPAY, for example, 65 percent of capital belongs to two South Korean investors Global Payment Service (64.99 percent), and UTC Investment (0.83 percent). Meanwhile, 90 percent of 1Pay is being held by True Money.

SBV stated that it plans to tighten control over the foreign ownership ratio in fintechs, a conditional business field. It also believes that setting a limit on foreign ownership ratio will help create fairer competition between Vietnamese and foreign companies.

An SBV official said fintechs operate in a conditional business field, which affects the stability and safety of the monetary policies of the nation. To prevent manipulation by foreign investors and protect national sovereignty in the banking and finance sector, it is necessary to set the capital contribution level foreign investors can make.

He said that it was normal to set foreign ownership ratio limit in fintechs. Other conditional business fields also have their limits. In Vietnam’s commercial banks, for example, the foreign ownership ratio must not be higher than 30 percent.

Meanwhile, the limit is 49 percent for non-bank credit institutions which operate in accordance with regulations on public companies.

In general, in the first phase of development, payment intermediaries, mostly fintech startups, only have ideas and technology, and lack capital to develop the ideas.

Therefore, governments do not need to restrict the sale of shares to foreign investors, so as to encourage foreign investors to bring money, technology, and corporate governance skills, thus helping markets develop.

However, when the intermediary payment market develops and reaches a certain scale, which may affect national security and banks’ operation, watchdog agencies will find it necessary to set up a suitable legal framework with limitations on foreign ownership ratio. This will better control the market.

However, strict control may result in foreign investors losing their motivation to join the Vietnamese market. If so, the capital flow to the Vietnamese market will decrease.

https://vietnamnet.vn/en/business/vietnam-considers-limits-on-foreign-ownership-ratio-in-fintechs-549468.html

How many banks will successfully apply Basel II?

19/Jul/2019 Intellasia| Dau tu Chung khoan

According to Circular 41/2016/TT-NHNN regulating the capital adequacy ratio (CAR) of banks and foreign bank branches, by January 1st 2020, all banks must comply with the Basel II standards. However, among the 10 pilot banks, some are still racing against time.

Big banks face difficulties

In Vietnam, the Basel II application roadmap consists of two phases, as proposed by the State Bank of Vietnam (SBV). In the first phase, 10 banks were selected to pilot the Basel II implementation from February 2016, including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Military Commercial Joint Stock Bank (MB), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Asia Commercial Joint Stock Bank (ACB), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Vietnam International Commercial Joint Stock Bank (VIB) and Maritime Commercial Joint Stock Bank (MSB). In the second phase, it is expected that banks’ equity comply with the Basel II, in which at least 12 to 15 banks successfully apply the full set of standards.

Initially, the deadline for the pilot phase was set from February 2016 to the end of 2018 and the second phase was set until 2020. However, since raising equity faces many difficulties, the time to apply the Basel II for the group of pilot banks has been postponed to 2020. However, so far, only Vietcombank, VIB, MB, ACB, VPBank, Techcombank and MSB in the pilot group and two other banks including Orient Commercial Joint Stock Bank (OCB) and Tien Phong Commercial Joint Stock Bank (TPBank) have completed the Basel II application.

Thus, VietinBank, BIDV and Sacombank are still racing against the time before 2020 begins. Notably, VietinBank and BIDV are encountering difficulties in the process of raising charter capital, because the foreign ownership room at VietinBank has been filled. According to the bank’s Chair of the Board of directors Le Duc Tho, increasing capital is particularly urgent. At the 2019 annual general meeting (AGM), VietinBank proposed to pay dividends in shares in the period of 2017 2020, at the same time develop a plan to raise capital and has been submitted by the SBV to the government.

Currently, the CAR of VietinBank has fallen to the minimum level in accordance with the law, while measures to increase equity (including Tier-1 and Tier-2 capital) have been fully used and reached the ceiling limits regulated by the law.

Meanwhile, BIDV expects to sell capital to foreign shareholder in order to improve its financial capacity, reaching the Basel II standards. In fact, from 2016 until now, the bank has continuously proposed many plans to raise charter capital, but none of them has been completed. By the end of 2018, BIDV proposed shareholders for approval of the plan to sell 17.65 percent of charter capital to a foreign partner KEB Hana from South Korea.

If the sale is successfully carried out this year, BIDV will increase its charter capital from more than 34 trillion dong to 40 trillion dong. KEB Hana Bank will hold 15 percent of the bank’s charter capital and the state ownership rate will fall from 95 percent to 80.99 percent.

Financial experts said that the successful sale of capital to foreign investors will help BIDV escape from the “red limit” on capital raising and financial capacity enhancement. In addition, the amount collected from the issuance will help the bank invest in credit activities, infrastructure, etc.

With the participation of this strategic partner, Viet Dragon Securities Company (VDSC) assessed that BIDV is likely have more advantages in exploiting retail segment, particularly through Fintech and electronic banking fields.

Sacombank is in the process of restructuring and accelerating the bad debt settlement after the merger with Southern Bank. Under the plan, this process will be completed in February 2020.

How will it be for small banks?

According to the Basel II, the CAR needs to reach a minimum of eight percent, about one percent in arithmetic less than the Basel I requirement, but the calculation is more complex. The SBV’s statistics showed that the CAR of the entire system is currently about 12 percent (minimum requirement is nine percent). In particular, the CAR of state-owned banks is 9.4 percent and that of private joint stock banks is more than 11.3 percent. By 2020, when the Basel II is widely implemented, the CAR of many banks is assessed to continue falling if calculated based on the new formula.

With the application of the Basel II standards, banks will be given a more open mechanism for credit growth room. In fact, credit growth is being considered as a bottleneck for the growth target and profit raising of many banks.

Currently, some banks are taking the last steps to be recognised as meeting the Basel II standards. Specifically, at the 2019 AGM held recently, Nguyen Huu Dang, general director of HCM City Development Commercial Joint Stock Bank (HDBank) said that the bank has applied for Basel II implementation since January 2019. With the current progress, HDBank will get approval from the SBV this year at the latest.

For Vietnam Thuong Tin Commercial Joint Stock Bank (VietBank), the bank’s general director Nguyen Thanh Nhung said that the bank will submit application to the SBV soon. Banks such as An Binh Commercial Joint Stock Bank (ABBank), Kien Long Commercial Joint Stock Bank (Kienlongbank), Bac A Commercial Joint Stock Bank (BacABank), National Citizen Commercial Joint Stock Bank (NCB), Viet Capital Commercial Joint Stock Bank (VietCapitalBank), and Nam A Commercial Joint Stock Bank (NamABank) are also expecting to soon complete the Basel II implementation.

General director of a small bank shared that the Basel II is a set of international standards that not only includes risk quantification through indicators and models, but also contains the completion of risk management structure and enhancement of market transparency. Banks meeting the Basel II standards are acknowledged as satisfying higher risk management principles, operate more safely and sustainably. However, in the context when there are numerous difficulties in the market and small banks find it difficult to increase their charter capital, it is not easy to complete the Basel II.

According to banking and financial expert Dr Bui Quang Tin, the most obvious benefit of the Basel II for Vietnamese banks is the strengthening of fair competition and system transparency, improving banks’ resistance to market instability and volatility. However, small banks are unlikely to meet the Basel II standards in a short time.

Meanwhile, the government’s goal is that joint stock banks will have their equity meeting Basel II standards by 2020, in which at least 12 to 15 banks successfully apply the standard Basel II. By the end of 2025, all banks will apply standard Basel II, and state-owned banks and private joint stock banks with good governance quality will pilot the application of advanced Basel II. Therefore, banks are racing to soon “graduate” the Basel II.

 


Category: Finance, Vietnam

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