Vietnam plans tighter limits on stakes in banks in blow to foreign investors

HANOI  – Vietnam’s central bank is seeking to reduce the maximum stake investors can hold in Vietnamese banks, according to a published draft document on a regulatory change that would make the sector less attractive to foreigners.

Under the proposal, published by State Bank of Vietnam on its website, individual investors would be allowed to hold up to 3 percent of the shares of a credit institution, down from 5 percent currently.

The limit for institutional shareholders, like investment or pension funds, would be reduced to 10 percent from the current 15 percent , but the draft proposal did not specify how long investors would be given to reduce their holdings to comply with the lower cap.

Currently, the combined stake of foreign investors in a bank cannot exceed 30 percent , while the cap for stakes in companies in many other sectors is set at 49 percent .

The central bank’s move to change the ownership limits follows several cases of fraud, including one that led to a run on a bank that a prominent real estate tycoon controlled through nominees and his own small holding.

In February, police in Vietnam opened an investigation into transactions made by foreign investors concerning listed domestic lender Eximbank as it suspected the share value had been manipulated, according to documents seen by Reuters and sources. The outcome of that probe is unclear.

The central bank said its proposed changes would reduce risks of market manipulation.

A Bangkok-based fund manager who declined to be named as he was not authorized to talk to media, said the lower cap would impact foreign investors more as their holdings were more often closer to the current maximum.

Foreign investors have repeatedly called for the caps on ownership to be raised, and they are often cited as a reason why Vietnam is still classified by index managers as a risky frontier market, depriving it of billions of dollars of investment.

Despite being an open economy that relies on foreign direct investment in its industries and whose exports are as much as its gross domestic product, Vietnam has for years limited foreigners access to its equity market.

The central bank also proposed a reduction to the maximum that a bank can lend to a single borrower, lowering it to 10 percent of the bank’s equity from 15% currently.

Analysts said tighter caps on banks’ stake holders and borrowing could exacerbate liquidity challenges in Vietnam, at a time when the country’s property developers are under pressure.

Earlier this month authorities approved regulatory changes in order to help developers by extending bond maturities and allowing debtors to pay back in assets.

The central bank also cut interest rates this week to spur growth and reduce pressure on debtors.