Share acquisition best way for foreign banks into Vietnam

Despite Vietnam’s novel WTO membership, the best route for foreign banks will continue to be share acquisition of domestic financial institutions, due to strict governance.

The establishment of wholly-foreign owned bank subsidiaries still faces technical hurdles that are hard to overcome, said Le Duc Thuy, governor of the State Bank of Vietnam.

Recently Shanghai, Hong Kong banking group HSBC unveiled its plan to double its 10% stake in the Vietnam Technological and Commercial Bank to 20% soon after reaching agreement on price and obtaining the central bank’s nod.

HSBC spent 17.3mio US$ to buy 10% the Techcombank stake earlier last year.

The French banking group BNP Paribas had acquired a 10% stake in the Vietnamese Orient Commercial Joint Stock Bank, or OCB, becoming the latter’s strategic partner late last year.

OCB’s strategy is to expand in fast-growing emerging markets, aiming to eventually elevate outside holdings to 20%.

The bank representative said it was ready to sell an additional 10% of the bank’s equities to the French bank if it received the central bank’s nod to do so.

And many other foreign banks that had holdings of 10% in Vietnamese joint stock banks expected to raise their ownership post-WTO as effective way to join the local banking industry intensively.

Under the country’s WTO commitments to open up banking industry foreign banks are eligible to found their own subsidiaries and branches in Vietnam as of January 4, 2007.

The SBV said it received around 10 applications from foreign banks to establish their wholly-owned subsidiaries in Vietnam) but the majority were unqualified.

The requirements for foreign banks to set up their own subsidiaries in the country are strict.

Under the rules, only banking institutions (not all investors) are entitled in minimum holdings of 51% in new subsidiaries.

The current rules require a new foreign bank subsidiary to have at least 70mio US$ in chartered capital and 10 billion US$ in total assets.

Thuy said these were just principle conditions but not every foreign bank could meet.

Additionally, the governments of two respective countries must have agreements on surveillance of banks before getting the license to enter the country’s banking sector.

Source: Thanh Nien