Firstly, it is necessary to accelerate the implementation of State capital divestment and equitization of government-owned commercial banks. Since 2004, the Government has introduced policies to equitize state-owned enterprises and state-owned commercial banks to increase the competitiveness and these efficiency of banks. However, because the public-owned bank model continues to play a significant role in Vietnam's economic growth by supporting the country's macro goals, the reduction of government ownership in these banks is necessary. but it must still play a dominating role in operations. The Prime Minister has so far given approval to the project "Restructuring the system of credit institutions for the period 2011 - 2015" according to Decision No. 254/QD-TTg and the Project "Restructuring the system of credit institutions associated with with bad debt settlement for the 2016-2020 period” according to Decision 1058/QD-TTg. These projects are the driving force for the diversification of ownership in state-owned commercial banks, in which implemented the equitization of Viecombank, Vietinbank
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and BIDV, in addition to successfully listing shares on the stock market as well as finding strategic foreign shareholders. According to Decision No. 986/QD-TTg dated August 8, 2018 issued by the Prime Minister "on approving the development strategy of Vietnam's banking industry to 2025, orientation to 2030", in the period of 2021-2025, state-owned commercial banks (except Agribank) will continue to play a key role in market share and scale, in addition to ensuring the state ownership rate at 51%. Although it is conceivable to lower the ownership rate without harming the state's control power according to the current law, in fact, at BIDV, Vietinbank and Vietcombank, this ratio is still high. At the end of 2021, the government ownership rate in these three banks are 80.99%, 64.46% and 74.8% respectively, with figures of 80.99% respectively; 64.46%
and 74.8%, especially for BIDV and Vietcombank, have not yet decreased to 65% as the target in Project 1058, while domestic private shareholders only own for a very small part (less than 10%). When the state ownership rate is still high, it will limit the dynamism and competitiveness of banks, and in addition, it will be difficult to attract foreign strategic investment.
Secondly, reducing government ownership in state-dominated commercial banks by encouraging shares of other sectors such as private or foreign is an important strategy in improving the financial capacity of banks. However, with current regulations, the State still holds at least 51% of the share capital of State-owned commercial banks, so when foreign or domestic private investors want to participate, it is necessary to increase the bank's charter capital at the same time to keep this ratio. In the context of the unstable economic situation due to the strong influence of the Covid-19 pandemic, the Government urgently needs cash dividends from state-owned commercial banks to supplement the budget. However, according to the analysis in chapter 2, in recent years, due to limited charter capital, these banks have had difficulty in meeting the minimum capital adequacy ratio according to Circular 41/2016/TT- SBV as well as expanding sustainable credit growth. Therefore, the Government should approve banks to pay dividends in shares to increase charter capital. At these banks, the charter capital is still
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not commensurate with the role, the leading position leading the market has limited the key role and pillar in implementing the state's policies, especially the expansion of banks.
policy credit programs, participating in large projects, national key infrastructure works to contribute to economic recovery. On the legal basis of Decree 121/2020/ND-CP, the increase in charter capital needs to be further promoted to ensure the state ownership role while still creating a driving force to attract investment from other sources in the economy, improving the operational efficiency of Vietnamese Joint-stock Commercial banks with the State ownership of over 50% charter capital.
Thirdly, offcials need to strengthen the legal framework, which focuses on the legal basis for ownership structure and governance activities in the bank, thereby improving the bank operational efficiency. Vietnam's economy is currently being heavily affected by the Covid-19 pandemic at the same time as the pressure of domestic economic recovery after the epidemic, leading to inefficient businesses and reduced revenue. Since then, when taking steps to boost the economy, Vietnamese commercial banks, particularly state-owned commercial banks, have been at danger of accruing non- performing loans due to businesses' incapacity to pay their due debts. Furthermore, as a country with a high level of economic openness and active integration with the global economy, Vietnam cannot avoid the impact of the political conflict between Russia and Ukraine, which will result in an increase in raw material and fuel prices in line with global prices, posing a high risk of inflation. Although according to the research results, inflation will increase the NIM of joint-stock commercial banks with the State ownership of over 50% charter capital, that is mostly just in terms of numbers. The reason is because the capital supply for the Vietnamese economy is mainly based on the banking system (in which the public-owned commercial banks account for the largest proportion), while the bank's capital is mainly short-term, increasing term risk and liquidity risk for banks.
Thus, the Government should soon approve and implement the Project on restructuring the system of credit institutions for the period of 2021-2025 to improve the health of banks. At the same time, in order to increase the efficiency of bad debt handling, the
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State needs to develop a law related to bad debt handling in the economy, in parallel with extending the application period for all provisions of Resolution No. 42/2017/QH14 “on pilot settlement of bad debts of credit institutions”.
Fourthly, the role of the representative of government ownership is also very important in the operation of State-owned commercial banks because they hold a large number of shares and have great influence in the bank's management. As a result, in order to avoid disagreements such as those described in agency theory, it is necessary to encourage the representative of the State capital to pursue the interests of bank shareholders by providing mechanisms that reward this object with shares or the right to buy preference shares when it completes the annual target tasks. There is already a legal foundation for requirements on the circumstances for appointing state capital representatives at banks, as well as their rights and responsibilities, including Circular No. 21/2014/TT-BTC and Decision No. 678/QD-NHNN. Moreover, in order to avoid moral hazard in the topic of representation, it is required to improve the training of honest, responsible officers who will work for bank development as well as the interests of shareholders, while also limiting their voting rights in the Bank's Board of Directors.
Fifthly, viable roadmap for loosening the foreign ownership limitation in Vietnamese state-owned commercial banks is required. According to the stipulations of Decree No. 01/2014/ND-CP "on foreign investors' purchase of shares in Vietnamese credit institutions," foreign investors' total share ownership cannot exceed 30%, which is also the case with Vietinbank. Because the rate of ownership is low, the ability for investors to intervene in the bank management process is limited. Furthermore, because three banks studied are state-controlled, their development potential is confined, making overseas investors wary of participating. In reality, after 9 years as a strategic stakeholder in Vietinbank, IFC began divesting from the bank at the start of 2020. As the research results in chapter 3, foreign ownership has an important meaning in improving financial efficiency in joint- stock commercial banks where the State owns more than 50% of charter capital. Therefore, raising the limit on foreign share ownership to above 30% as
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at present is necessary to improve the financial performance of Vietnamese banks in general and the banks in the study in particular. Beside, the State needs to accompany the research banks to carefully select appropriate foreign strategic shareholders. These strategic shareholders must meet the conditions of strong financial capacity, wide customer network, and reputation in the market to be able to assist in improving the bank's operational efficiency. On the other hand, if the foreign ownership share is too large, management may find it difficult to control capital inflows, causing the local financial system to become more reliant on external resources. Foreign investors, moreover, can control banks by exploiting loopholes in Vietnamese law. As a result, officials must devise a careful roadmap to soften the rules for foreign investors so that both the full potential of foreign forces may be realized and frauds can be avoided.