Foreign stakes to rise in Vietnam's 'weak' banks

Hanoi (Viet Nam News/ANN) - The State Bank of Viet Nam is considering a proposal to increase the limit on foreign ownership in 'weak' banks, says Governor Nguyen Van Binh.

Existing government regulations in Decree No 69/2007/ND-CP stipulate that the total foreign ownership in a domestic commercial bank may not exceed 30 per cent of the bank's charter capital.

Binh said that the central bank has submitted to the Government a draft decree that would lift this limit for weaker banks, while increasing the limit on ownership of a single foreign strategic shareholder in any other bank from 15 per cent to 20 per cent.

"To attract foreign investors, especially foreign banks with strong financial capacity and experience to participate in the process of restructuring the domestic banking system, the draft decree would allow foreign investors to own over 30 per cent of equity in weak banks undergoing restructuring process, depending on specific cases," Binh said.

With the nation's stock market in a long-term slump, the Government has heard repeated calls to expand the space for foreign investors to invest in Vietnamese companies, including banks.

The central bank has also tried to indirectly enhance the attractiveness of securities investments by capping the amount of interest investors can earn on bank deposits, but money has still ignored the market.

"Interest rate reduction is only one of the conditions for investment capital to flow into the stock market," Binh said. "The most fundamental factors [for attracting capital] are still the business efficiency of companies, economic stability and investor psychology."

Despite significant declines in interest rates last year, many companies suffered difficulties in production due to low demand and high inventories, leaving stocks unattractive to investors, he noted, adding that bank shares were among those that did not perform well last year due to disappointing earnings results.

Increasing bad debt levels had also required banks to set aside larger provisional funds to hedge risks, Binh said.

Goverment support policies were likely to help businesses reduce inventories and recover operations in the near future, he said.

"I believe the stock market will then improve," he predicted.

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