10 January 2014
In our legal update dated 7 October 2013, Vietnam Considers Loosening Foreign Shareholding Restrictions in Local Banks, we reported that Vietnam was considering facilitating foreign investment in local banks. This appears to be driven in large part by a recognition by the State Bank of Vietnam (SBV) that foreign investors can play a key role in injecting sorely needed capital into the banking sector.
On 3 January 2014 the Vietnamese Government released its first decree of calendar year 2014, Decree 01/2014/ND-CP (Decree 01) on purchase by foreign investors of shareholding in Vietnamese credit institutions. Decree 01 replaces Decree 69/2007/ND-CP (Decree 69). Decree 01 implements the draft decree on which we reported in October in substantially all aspects.
Whereas Decree 69 related solely to banks, Decree 01 applies to investment in "credit institutions", which in addition to banks, includes non-banking credit institutions (mainly finance companies and finance leasing companies), micro-financial institutions and people's credit funds.
Under Decree 01, a foreign strategic investor may now buy up to 20% of equity in a credit institution without having to obtain approval from the Prime Minister. This is increased from the 15% ceiling under Decree 69.
Moreover, Decree 01 does not distinguish with respect to ownership caps between a foreign credit institution and foreign institutional investor that is not a credit institution. In each case, such an entity may hold up to 15% of a credit institution (or 20% together with its related parties).
The total foreign ownership cap remains unchanged at 30%.
The table below (which is consistent with our report in October based on the draft decree that has been promulgated as Decree 01) sets out key differences in shareholding ceilings between Decree 01 and Decree 69:
- Any foreign individual: 5%
- Any foreign organisation: 15%
- Any foreign strategic investor: 20%
- Any foreign investor and its related parties: 20%
- Total shareholding of all foreign investors and their related parties: 30% (exceptions may be given by the Prime Minister to weak credit institutions for restructuring purposes on a case-by-case basis)
- Any foreign non credit institution investor and its related parties: 5%
- Any foreign credit institution investor and its related parties: 10%
- Any strategic investor and its related parties: 15% (or up to 20% with Prime Ministerial approval)
- Total shareholding of all foreign investors and their related parties: 30% (no exception)
Decree 01 omits the express requirements that a foreign credit institution may only be a foreign strategic investor in one bank and that a foreign credit institution may only participate in the Board of Management of maximum two banks under Decree 69. Instead, Decree 01 stipulates that a foreign strategic investor in one credit institution cannot hold 10% or more of the charter capital at any other Vietnamese credit institution. This opens the door to the possibility that a foreign investor could theoretically be a strategic investor in more than one local credit institution, though the 10% ceiling on ownership in the second entity may make this unattractive commercially.
Capital Base Requirements for Investors Revisited
Under Decree 01, there is no minimum total asset base requirement for foreign investors wishing to acquire less than 10% of the charter capital in a Vietnamese credit institution.
Foreign investors who wish to acquire 10% or more of a Vietnamese credit institution must have minimum total assets of US$10 billion (if they are foreign banks, foreign financial institutions or foreign financial leasing institutions) or US$1 billion (if they are other types of organisations). Those who wish to become a foreign strategic investor are required to have minimum total assets of at least US$20 billion.
Capital Base Requirements for Target Credit Institutions Removed
Decree 01 removes all requirements laid down under Decree 69 with respect to capital requirements for Vietnamese credit institutions to sell shares to foreign investors. This will pave the way for all Vietnamese credit institutions, especially those most in need of restructuring, to benefit from future flows of foreign investment.
Decree 01 will take effect as from 20 February 2014.