Enhancing Foreign Ownership in Vietnamese Banks to Attract International Investors
Vietnam Increases Foreign Ownership Limit in Banks, Marking a Step Towards Greater Liberalization
In a move aimed at attracting more foreign investment and fostering financial sector growth, the Socialist Republic of Vietnam has raised the foreign ownership limit in local banks from 30% to 49%. This development, outlined in Decree No. 69/2025/ND-CP, signals a significant shift in the country's banking landscape.
The new decree introduces exceptions to the general 30% foreign ownership cap for joint stock banks, particularly in restructuring scenarios. In such cases, a higher 49% cap applies to joint stock banks receiving a "mandatory transfer" of an insolvent bank under "special supervision".
For limited liability banks, the change means that they can now be 100% foreign owned, typically by a single foreign bank parent. This shift is designed to encourage foreign investment and foster competition within the banking sector.
The law sets no specific upper limit for the prime minister's discretion in this case, effectively leaving the cap to the prime minister's discretion. This flexibility allows for case-by-case approvals, with the prime minister able to approve higher foreign ownership beyond the statutory caps when necessary to ensure systemic stability.
Foreign investors at 49% ownership in Vietnamese banks gain substantial governance powers. They can request extraordinary shareholder meetings, nominate board candidates, and access corporate records. In extreme cases, the prime minister can also grant them the power to influence supermajority-approved decisions such as charter capital changes, share issuance, and major asset transactions.
To qualify as a mandatory transferee, the local bank must have been profitable for the two years immediately preceding the transfer, comply with prevailing prudential ratios, and prepare a feasible mandatory transfer plan. The receiving bank must not be more than 50% state-owned, and the foreign investor's share acquisition must occur during the mandatory transfer period as prescribed by the approved mandatory transfer plan.
This policy approach reflects a balance between attracting foreign capital and maintaining financial sector stability. It mirrors the policy approach of Malaysia, where foreign banks can establish wholly owned subsidiaries but can only acquire up to 30% of existing local banks' equity.
Duyen Ha Vo, a senior partner at Vietnamese law firm VILAF, and Truong Nhat Quang, the managing partner at YKVN, have both commented on this development. They highlight that this increase in the foreign ownership cap is a step towards greater liberalization in Vietnam's banking sector. However, they emphasize that the government's current policy favors gradual liberalization, limited to cases involving bank restructuring or special supervision, rather than an overall accelerated increase in the foreign ownership cap.
In conclusion, the increase of the foreign ownership cap to 49% for transferee banks under mandatory transfer plans is a significant step in Vietnam's ongoing efforts to liberalize its banking sector. This move is expected to attract more foreign investment, foster competition, and contribute to the growth and stability of Vietnam's banking sector.
Read also:
- Planned construction of enclosures within Görlitzer Park faces delays
- Foreign financial aid for German citizens residing abroad persists
- United States and Russia prepared to delve deeper into negotiations regarding the Sakhalin 1 oil and gas project
- Heavy-duty zero-emission vehicles may be exempted from tolls for how long, according to the commission's proposal.
