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Many opportunities in Vietnamese banks for European investors

Many opportunities in Vietnamese banks for European investors

Friday 21, 02 2020
Regarding capital contribution in the form of buying shares of commercial banks, within five years from the date of entry into force of this agreement

One of the notable agreements in the EVFTA is in the banking sector. Accordingly, five years after the agreements takes effect, Vietnam commits to favorably consider allowing EU’s credit organizations to raise the foreign holding to 49% of the charter capital in two Vietnamese commercial banks.

The chance to find strategic shareholders in Europe

On 12th February 2020, the European Parliament officially voted the issuance of the EVFTA, marking the end of nearly a decade of tireless negotiation between the two parties. The agreement is going to officially take effect after it is approved by the Vietnam National Assembly and the European Commission next May.

It is worth noting that the memorandum on the bank's capital contribution with five terms clearly states: “Regarding capital contribution in the form of buying shares of commercial banks, within five years from the date of entry into force of this agreement, the competent authorities of Vietnam will consider in the spirit of goodwill proposals of EU credit institutions on allowing foreign investors to hold a total of shares in two Vietnamese joint stock commercial banks which amounts to 49% of their charter capital. ”

However, this provision does not apply to the four joint stock commercial banks (JSCBs) that the Government of Vietnam is holding dominant shares, including BIDV, VietinBank, Vietcombank, and Agribank. In addition, the above provision shall only be applied in accordance with a general and voluntary agreement between the relevant joint stock commercial banks of Vietnam and EU credit institutions.

Many opportunities in Vietnamese banks for European investors

In the context that the banking industry is still in a period of strong restructuring, the need to find foreign strategic shareholders and international investment capital is still very large, therefore EVFTA opens up more opportunities for domestic banks to seek more investment partners, thus increasing financial resources and taking advantage of European business, management, and technology models.

In recent years, the flow of international investment capital into Vietnamese banks is not small, but the Eastern capital flow of countries such as Japan, South Korea, and some Southeast Asian countries still accounts for a significant proportion.

If you look at the list of foreign strategic shareholders of domestic banks, the names from the West, especially from Europe, are increasingly scarce. Previously, BNP Paribas of France invested in Orient Commercial Joint Stock Bank (OCB) from late 2007 and had divested in early 2018. Societe Generale Bank of France is also a strategic shareholder of Southeast Asia Commercial Joint Stock Bank (SeABank) from 2008 but had also divested in early 2019.

Another case is the strategic shareholder Deutsche Bank Aktiengesellsfchaf Habubank, but after Habubank's merger with SHB, the German bank's investment in the new bank has dropped to less than 5% and transferred into a regular financial investment.

Therefore, EVFTA is expected to open a new wave of investment from Europe into the Vietnamese banking industry. Despite the commitment to allow excess ownership in only two banks, it can still be considered an experimental step or an initial survey, and if everything goes smoothly, it will not rule out the possibility that the authorities will open the door wider for the banking industry, from removing the limit on the number of banks to raising the ownership ratio for foreign investors in the remaining banks. According to the Government's Decree No. 01/2014 / ND-CP, the current shareholding ratio of a foreign strategic investor must not exceed 20% of the charter capital of a Vietnamese credit institution, and the total shareholding ratio of foreign investors in a domestic credit institution cannot exceed 30%.

The EU, the Ministry of Finance, and the State Bank (SBV) will still have to consider which bank will meet the criteria for European credit institutions to raise the foreign room to 49%. Some opinions said that reputable private banks with the most outstanding performance today would have many advantages. However, banks that used to have strategic shareholders from Europe as mentioned above could also be noted for their long history of cooperation with European banks. Even weak banks in the restructuring phase can become targets to be considered, as a voluntary mechanism is available in the commitments.

Network expansion and indirect benefits

In addition to welcoming capital flows from the EU, EVFTA can pave the way for Vietnamese banks to increase their presence in the old continent, from single market exploration to cooperation with existing organizations in the region.

Currently, the number of Vietnamese banks having networks in Europe is really low. For example, VietinBank has opened a branch in Germany since 2011, BIDV has representative offices in Russia and the Czech Republic, Vietcombank has offices in France and Russia, MBBank has representative offices in Russia, however, Russia is not part of the EU. Although there is an opinion that Vietnamese banks do not have many opportunities in Europe because the scale and capacity are incomparable to that of EU banks, in recent years, many domestic banks have grown sharply in size, meeting the Basel 2 standard, resulting in the high possibility to develop and expand their network here in the near future, especially when many banks are aiming to internationalize their operating markets and become one of the leading banks in the region, following the development orientation of the Government.

As Vietcombank has recently reached out to Australia and the US, it is among the top 2 banks with the highest growth in brand value globally. In addition, EVFTA will also stimulate international investment flows into all other sectors and industries in Vietnam, as well as expand opportunities to enhance trade, import, and export between the two markets.

According to research by the Ministry of Planning and Investment, EVFTA will help Vietnam's export turnover to the EU increase by about 20% by 2020, by 42.7% in 2025, and by 44.37% in 2030. This also brings great benefits to the current operation of banks, as there is an opportunity to expand the current products and services offered.

Obviously, when foreign currency flows into the country, products such as capital mobilization and foreign exchange trading will have more conditions to develop. Meanwhile, increased export opportunities will boost domestic enterprises to expand production and investment activities, so banks can increase capital lending, as well as money transfer, international payment, and guarantee activities.

​>> EVFTA Agreement: Issues that Vietnamese enterprises should pay attention to

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Banking

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