A government-imposed 30% cap on foreign ownership of Vietnamese banks is holding back investments in the banking sector of the fast-growing Southeast Asian nation.
Vietnamese lenders have attracted investments from financial companies in Japan and South Korea, but the nation's six largest publicly listed banks have limited headroom to increase their foreign ownership. Five banks already have foreign ownership above 20%, according to data from S&P Global Market Intelligence.
"We believe that foreign ownership of Vietnam financial institutions will continue to be limited to minority stakes, with the possible exception of distressed financial institutions where the government might consider lifting foreign ownership limits. Overall, we believe M&A will continue to be muted if these limits remain in place," Ivan Tan, an analyst at S&P Global Ratings, told Market Intelligence in an email.
Vietnam Prosperity Joint Stock Commercial Bank (VPBank) had the largest percentage of foreign ownership at 27.80% among the six largest publicly listed banks in the country, according to Market Intelligence data. Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) has the second-highest foreign ownership at 27.05%. Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) had the lowest percentage of foreign ownership among the six lenders at 17.21%.
Still, Vietnam's banking sector offers attractive prospects for foreign investors given the country's economic growth in recent years and a bright outlook. The International Monetary Fund expects Vietnam's GDP to grow 5.8% in 2024, after the economy expanded 5.05% in 2023. The country has attracted foreign investments in technology and manufacturing in recent years as global supply chains realign.
Ratings expects Vietnam's GDP to expand by 5.8% in 2024 and 6.7% in 2025. "This growth will likely be fueled by credit from the banking sector, and foreign investors could gain exposures to this via strategic stakes in Vietnam banks," Tan said.
Japanese megabanks have been the major investors in Vietnam's banking sector. Mitsubishi UFJ Financial Group Inc. holds a 19.73% equity stake in Vietinbank, Mizuho Financial Group Inc. holds 15% in Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Sumitomo Mitsui Financial Group Inc. owns 15.01% of VPBank.
"Banks in emerging markets are continually looking for capital to fuel growth and satisfy ever-evolving capital regulatory requirements according to the Basel standards," David Harrison, a partner at law firm Mayer Brown who specializes in M&A and banking and finance, told Market Intelligence in an email. "Foreign investment in Vietnamese banks will therefore remain attractive for investors that have a positive macroeconomic outlook on Vietnam despite regulatory hurdles," he said.
With foreign investment capped at 30%, some banks are holding off until they find strategic buyers for bigger stakes. Vietnam Technological and Commercial Joint Stock Bank (Techcombank), which has a foreign ownership ratio of 22.49%, is looking for deals to sell the remaining foreign room it has to strategic shareholders, Viet Nam News reported in June. Saigon - Hanoi Commercial Joint Stock Bank (SHB) wants to complete the sale of 20% of its shares to foreign investors in 2024, according to the report. Techcombank did not respond to Market Intelligence's email request for comment.
"Local banks would not want to see the 30% cap reached by multiple foreign investors holding 1% to 2% each," Harrison said. "They want to ensure there is available foreign room for a high-profile anchor investor or a consortium that would hold at least 15%. The balance of the foreign ownership room can be filled out through a secondary investor or through market trades."
