Vietnam: Raising the ceiling on foreign investment

Author: | Published: 24 Feb 2014
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Phung Thi Thanh Thao
On January 3 2014, the Government of Vietnam issued the much anticipated Decree 01/2014/ND-CP (Decree 1) relating to the purchase by foreign investors of shares in Vietnamese credit institutions. Decree 1 replaces Decree 69/2007/ND-CP of the Government of Vietnam, dated April 20 2007, on the purchase of shares by foreign investors in Vietnamese commercial banks (Decree 69). In addition to banks, the new Decree governs finance companies and finance-leasing companies, providing more opportunities for foreign investment.

Increased foreign ownership ceiling in credit institutions

One feature of Decree 1 is the increased ceiling on foreign shareholding permissible for different categories of foreign investors investing in a credit institution in Vietnam. In particular, while a foreign individual investor's shareholding remains limited to a maximum of 5% of the charter capital of a Vietnamese credit institution, an individual foreign organisation may now hold up to 15% shareholding (previously 10%), and a foreign strategic investor may hold up to 20% (previously 15%).

The total shareholding level for foreign investors remains unchanged at 30% investment in a credit institution.

We note that in special cases, in order to implement the restructuring of a weak credit institution, the Prime Minister has the discretion to determine an appropriate shareholding percentage, which may exceed the stated ceilings.

Conditions for purchasing shareholding

Under Decree 1, there are now separate sets of conditions applicable to two distinct groups of investors. For foreign organisations proposing to become foreign strategic investors, they will need at least $20 billion in total assets, and at least five years international work experience in the banking and finance sector, as well as a written commitment and plan on a binding, long-term relationship for the benefit of Vietnamese credit institutions, which includes technology transfer, product and service development, and administrative and financial capacity improvements.

For foreign investors proposing to purchase 10% or more of a Vietnamese credit institution, they must have total assets of $10 billion and must be rated by international credit rating agencies at a level equivalent to at least stable.

Moreover, in order for a Vietnamese credit institution to qualify to sell shares to a foreign investor, it must have an equitisation or transformation plan which includes the intention to sell shares to foreign investors, which has been approved by the State Bank of Vietnam and the Prime Minister.

Decree 1 came into effect on February 20 2014.

Phung Thi Thanh Thao