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Opportunities for European investors in Vietnamese banks

Opportunities for European investors in Vietnamese banks

Thursday 27, 02 2020
EVFTA is expected to create a new wave of investment from Europe into Vietnam's banking industry

 Within five years from the effective date of EVFTA, Vietnam pledged to consider allowing EU credit institutions to raise their ownership to 49% of charter capital in two joint stock commercial banks in Vietnam.

Opportunities for European investors

On February 12, 2020, the European Parliament (EP) officially voted through the EU-Vietnam Free Trade Agreement, also known as the EVFTA, marking the end of nearly a decade of negotiations between the two parties.

The agreement will take effect immediately after being ratified by the Vietnamese National Assembly (expected in May) and approved by the European Commission. The Memorandum of Understanding on capital contribution includes five terms which clearly state: “Regarding capital contribution in the form of share purchase in 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 the proposal of the EU credit institutions to allow foreign investors to hold 49% shares in the two commercial banks of Vietnam”.

However, this provision does not apply to the four joint stock commercial banks in which the Government of Vietnam holds 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.

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

In recent years, the flow of foreign investment capital into Vietnamese banks is quite large, however, accounting for a significant proportion is still the Eastern capital flow of countries such as Japan, South Korea and some Southeast Asian countries. Regarding Western capital flow, in the past, BNP Paribas of France once invested in Orient Commercial Joint Stock Bank (OCB) in late 2007, but it divested in early 2018. Societe Generale Bank of France was also a strategic shareholder of Southeast Asia Commercial Joint Stock Bank (SeABank) since 2008, however, the cooperation stopped in early 2019.

Therefore, EVFTA is expected to create a new wave of investment from Europe into Vietnam's banking industry. Although the commitment allows excess ownership in only two banks, it can be considered as an experimental and initial step. If everything goes smoothly, it will not rule out the possibility that Vietnamese regulators will open the door wider for the banking industry.

According to the Decree No. 01/2014 / ND-CP, the current ownership ratio of a foreign strategic investor must not exceed 20% of charter capital of a Vietnamese credit institution, and the total ownership ratio of foreign investors in a domestic credit institution is not allowed to exceed 30%.

Which banks will meet the requirements for European credit institutions to increase their ownership rate to 49% will be decided by the EU, the Ministry of Finance, and the State Bank of Vietnam (SBV). Some said that reputable private banks with the most outstanding performance will have many advantages.

However, banks that used to have European strategic shareholders as mentioned above may also be noted for their long history of cooperation with European banks. Even weak banks can also become targets for consideration when the voluntary mechanism is available in the commitment.

Opportunities for European investors in Vietnamese banks

Indirect benefits

In addition to 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 very small.

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 their scale and capacity are incomparable to that of EU banks.

However, in recent years, many domestic banks have grown significantly in size, meeting the Basel 2 standard. Thus, chances are high that these banks can 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.

On top of that, 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% in 2020, 42.7% in 2025 and 44.37% in 2030.

This also brings great benefits to the current operation of banks when they have the opportunity to expand the current products and services offered. Obviously, when foreign currency flows into the country, 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 lend more capital, as well as develop money transfer and payment activities. International payment guarantee can also grow stronger.

​>> Banks with the most potential to increase foreign room according to EVFTA

Source: thesaigontimes


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