New wholly foreign owned banks might cease to emerge

By Ngoc Nguyen - Aug 14, 2018 | 04:35 PM GMT+7

TheLEADERThe Government will not likely grant any more business licenses for banks with 100 per cent foreign capital, according to Deputy Prime Minister Vuong Dinh Hue.

New wholly foreign owned banks might cease to emerge
There currently are nine wholly foreign owned banks in Vietnam

Speaking at the Vietnam M&A Forum 2018 held recently in Ho Chi Minh City, he added that instead the Government would encourage foreign banks to acquire weaker domestic banks in Vietnam.

Currently, there are nine wholly foreign owned banks, of which the first five banks were licensed in 2008 and four more were opened in the last two years.

Many other foreign banks also establish branches and representative offices in Vietnam, which shows that the current financial and banking sector in Vietnam is still very attractive to foreign investors.

At the moment, many domestic banks are dealing with the challenge of raising capital to meet the conditions in Basel II standards, which is the second version of the Basel Accord that introduces a series of approaches to control risks of credit, market and operation of banks rather than just focusing on credit like Basel I.

The requirement for capital adequacy ratio (CAR) of Basel II is still the same at eight percent; however, without the increase of charter capital, CAR of banks will become below the required level as the prescribed elements of market and operational risks now added to the denominator.

Whereas, foreign banks are relatively relaxed, as the CAR of these banks is at 29.11 per cent, which is three times higher than the ratio of state-owned commercial banks and 2.5 times higher than the ratio of private owned banks in Vietnam.

Dr. Phan Minh Ngoc, director of Intelligence Service Partners (Singapore) said that the plan to tighten up the opening of new banks with 100 per cent foreign capital might emerge due to the extremely large number of commercial banks which exceeds the size of Vietnam’s economy.

As a result, the State would like to restructure and merge these banks to reduce the number of banks in the system.

Even though, limiting the number of new wholly foreign owned banks in Vietnam could potentially lessen the competitiveness of the market and also decrease the investment efficiency, however in turn it could increase the stability of the banking system, according to Dr. Phan Minh Ngoc.