The Vietnamese banking sector is becoming increasingly attractive to foreign investors, especially with the prospect that shares will be issued in the main state-owned commercial banks. However, access to the banking sector by foreign investors through equity acquisitions in existing banks is still highly regulated.
On April 20 2007, the Vietnamese government promulgated Decree 69/2007/ND-CP, which lays down stringent rules for equity acquisitions by foreign investors in Vietnamese banks, whether in state or private ownership.
In general terms, Vietnam has undertaken to allow foreign investors to acquire equity interests in Vietnamese companies up to a limit of 30% of share capital. This ceiling should, in principle, be removed within a year of the country's accession to the WTO (that is, by January 11 2008), however equity acquisitions in Vietnamese commercial joint stock banks are subject to special treatment.
The banks concerned
Decree 69 applies to equity acquisitions in commercial banks (state-owned commercial banks and joint-stock banks). It does not apply to equity acquisitions in all credit institutions, especially the cooperative banks that generally service rural areas. Equity acquisitions in listed commercial banks are also outside the scope of Decree 69.
Vietnamese commercial banks wishing to open up their capital to foreign investors must satisfy stringent conditions in terms of capital, financial capabilities, auditing and supervisory systems.
The notion of a foreign investor
The definition of foreign investor occupies a big part of Decree 69. There are two categories:
- Individuals and foreign private investors, whether or not they are resident in Vietnam.
- Organizations and corporate entities incorporated in accordance with a foreign legal system, whether or not they do business in Vietnam.
Foreign investors must satisfy certain conditions to be eligible to invest in a Vietnamese commercial bank in terms of the amount of assets at their disposal, their professional experience and credit rating.
Decree 69 offers a position of choice to foreign credit institutions ready to acquire equity in a Vietnamese bank. They may claim special status as strategic investors.
A strategic investor is permitted to acquire a larger stake in a bank's capital than any other foreign investor (subject to certain conditions). In return, the strategic investor must promise to provide the Vietnamese bank with technical assistance to develop new products and help it in its efforts to modernize. A foreign credit institution may be a strategic investor in only one Vietnamese commercial bank.
Highly regulated equity acquisitions
Decree 69 limits the total stake that foreign investors as a whole may acquire in a Vietnamese commercial bank to 30%.
The definition of foreign investor is fairly wide. Accordingly, the ceiling and all of the restrictions set out below apply not only to direct equity acquisitions by foreign investors but also to those by any party affiliated to the foreign investor, that is, any private individual or corporate entity enjoying capital, managerial, representative or filial connections with the foreign investor.
An affiliated party could be a parent company, subsidiaries and, generally, all the members of the same economic group. The subsidiaries of foreign banks in Vietnam, whether they are wholly foreign-owned banks or joint ventures, would appear, according to the definition, to be affiliated parties, so they are subject to the restrictions set out in Decree 69.
Decree 69 also sets a ceiling of 5% for any single foreign investor that is not a credit institution.
The ceiling for each credit institution is 10%.
A strategic investor may own a stake of up to 15% in a Vietnamese commercial bank.
By way of exception, the Prime Minister may authorize a strategic investor to exceed the 15% ceiling. However, in no circumstances may the equity stake exceed 20%.
The equity stake ceilings referred to above also apply to equity acquisitions in Vietnamese listed banks.
In principle, foreign investors have the same rights and duties as Vietnamese shareholders. They may participate in bank management, governance and supervision.
A foreign credit institution is only entitled to sit on the board of directors of two commercial banks in which it is a shareholder.
Strategic investors (and parties affiliated to them) are obliged to retain their equity interests in a Vietnamese commercial bank for at least five years.
Foreign credit institutions (and parties affiliated to them) that do not have strategic investor status but that own 10% of the share capital in a Vietnamese bank are obliged to retain their equity interests for at least three years.