CHAPTER 2: REAL SITUATION OF OWNERSHIP STRUCTURE AND FINANCIAL
2.1. Overview of ownership structure and financial performance of Vietnamese commercial banks
2.1.2. Overview of the ownership structure of Vietnamese commercial banks
Before 1986, the centrally planned economy only allowed the banking system to have only one level of unity from the central to the local, the SBV was both the central bank and the commercial bank. Although acting as an intermediary to finance the economy, that capital is an activity designated by the Government, serving the country's macro goals, not serving the supply and demand of the market. In 1986, Vietnam started the innovation process, its focus is on moving from a centrally planned economic model to a multi-component commodity economy model, which poses an urgent need for the banking system to separate the management function and business. After the issuance of Decree 53/HDBT dated March 26, 1988, the State Bank of Vietnam apparatus stipulated that SBV was split into two levels, along with the introduction of 2 Banking Ordinances on May 24, 1990, the operating mechanism of Vietnam's banking industry officially fundamentally and comprehensively renewed the two-tier banking system. Which, the State Bank is in charge of state management of monetary and credit policies and is the Central Bank; a system of specialized banks (including four banks: Agriculture Development Bank, Industry and Trade Bank, Investment and Construction Bank, and Foreign Trade Bank) doing business in the field of currency, credit applications, and
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banking. Such a paradigm shift in the banking industry has created the impetus for the development of other economic sectors such as the private sector, thereby directly and indirectly greatly contributing to economic growth, and improving people's lives.
After more than 30 years of renovation, Vietnam's banking industry has undergone great changes and achieved certain achievements, making positive contributions to socio-economic development. Notably, under the direction of the Government, the participants in the banking market diversified, the State ownership rate decreased and the foreign ownership rate increased. The diversification of ownership structure, or the emergence of new types of banks, has led to changes in bank performance.
According to the content of Decree 141/2006/ND-CP of the Government
"promulgating the list of legal capital levels of credit institutions" and Decree No.
10/2011/ND-CP "amending and supplementing some articles of Decree No.
141/2006/ND-CP of November 22, 2006, promulgating the list of legal capital levels applicable to credit institutions", banks want to maintain operation must have a charter capital of at least 1,000 billion dongs in 2008 and 3000 billion dongs by the end of 2011.
During that time, banks all aggressively implemented capital raising measures such as mergers and acquisitions, selling shares to investors, especially foreign investors, or increasing their accumulated profits and contributions from existing shareholders,... Up to now, joint-stock commercial banks have continuously increased capital to ensure network expansion as well as strengthen financial capacity, and increase medium and long-term capital sources to expand business activities.
Currently, the Vietnamese banking system includes 6 main types: State-owned commercial banks (Agribank, GPbank, Oceanbank, CB bank); Joint-stock commercial banks (including three banks with the state ownership of over 50% charter capital);
Banks with 100% foreign capital; Joint-venture bank; Policy bank; Cooperative Bank.
In terms of ownership identities, the ownership structure of Vietnamese commercial banks includes state ownership, private ownership and foreign ownership.
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State ownership:
With the policy of the State as well as efforts from the bank to carry out equitization, around the 1990s, the government ownership rate was 100% in the Vietnamese banking system, as of December 30th, 2016, this rate dropped to 28.8%. Among state-owned commercial banks, Vietnam's Joint Stock Commercial Bank for Foreign Trade (Vietcombank) was the first bank to implement equitization in 2007, followed by Vietinbank and BIDV, leading to a decrease in state ownership in these banks. By the end of 2020, the state ownership rates at BIDV, Vietcombank, and Vietinbank are 80.99%, 64.48%, and 74.8% respectively. In addition, following restructuring, 3 joint- stock commercial banks, including GP Bank, Oceanbank, and CB bank, were turned into one-member limited liability banks controlled by the State.
Domestic private ownership:
Faced with the need for capital for production and business after the renovation period, the ability to meet capital for the country's economic activities of policy banks and state- owned commercial banks is not enough. At the same time, the opening for the private economic sector to be developed has promoted the formation and development of private-owned commercial banks. In contrast to changes in government ownership, private ownership in commercial banks has witnessed a significant increase in the past two decades. After a series of activities to restructure the system of credit institutions, as of December 31, 2021, there are 31 joint-stock commercial banks in Vietnam.
Like some other developing countries, it is a fact that the joint-stock commercial banks in Vietnam exist under family ownership. The Law on Credit Institutions 2017 prohibited individuals from owning shares exceeding 5% of the bank's charter capital and the total number of shares held by the group of related shareholders not exceeding 20%. However, in practice, this provision has not been complied with. Although the rate of family ownership in joint-stock commercial banks has now decreased and meets the regulations of the State Bank, this situation is still common. Currently, there hasn't been particular research on how "family" banks utilize money, whether they make mistakes
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with loans, how much damage they create,... The bank's financial performance, on the other hand, partly reflects operational efficiency, and the existing restriction on family banks is completely justified.
Foreign ownership:
Foreign banks can develop a commercial presence in Vietnam from 2006, under agreements to join the WTO, by setting up representative offices, and branches, joining joint-venture banks, and establishing a bank with 100% foreign capital in Vietnam.
Concerning capital contributions in the form of share purchases, the total number of shares allowed to be held by foreign natural and legal entities in each Vietnamese joint- stock commercial bank must not exceed 30% of the bank's charter capital, and a foreign investor (together with related persons) may not hold more than 20% of a bank's charter capital unless otherwise provided for by Vietnamese law or permitted by a Vietnamese competent authority.
The private joint-stock commercial banking sector has opened a wave of attracting foreign investment into the banking sector, beginning with three major M&A deals in 2005: Standard Chartered bought more than 8.5% stake in ACB, HSBC bought 10 % shares of Techcombank, ANZ buys 10% shares of Sacombank. Following the three successful transactions, several foreign investors began pouring money into the Vietnamese banking sector and domestic banks were also looking for international strategic investors. The wave of foreign capital calling through strategic partners only paused when the Vietnamese banking system fell into crisis, then continued to be accelerated in recent years. Notably, in 2011, foreign ownership has been present in two joint-stock commercial banks with the State ownership of over 50% of charter capital, Vietinbank, and Vietcombank. Foreign strategic partners are required to help and accompany Vietnamese banks to develop available resources, strengthen governance capacity, and increase operational efficiency, based on a stable financial basis, modern and sophisticated science and technology, and a big customer base. In reality, foreign strategic shareholders' ownership in Vietnamese commercial banks contributes to
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increased visibility and transparency, as well as improved operational quality and service performance. However, according to restrictions of Vietnamese legislation, foreign strategic owners' participation is still limited, restricting their influence in the management of the domestic bank.
By the end of 2021, Vietnam only has 2 joint venture banks: Indovina Bank Limited (IVB) (with capital contributions from Vietinbank and Cathay United - Taiwan) and Vietnam-Russia Joint Venture Bank (VRB) (with capital contribution from BIDV and VTB-Russia). In addition to contributing capital to the domestic joint-stock commercial banks, foreign financial institutions also enter Vietnam's financial-banking industry through direct investment by establishing banks with 100% foreign capital. As of December 31, 2021, the country had 9 commercial banks with 100% foreign ownership, primarily in Hanoi and Ho Chi Minh City. HSBC, with headquarters in Ho Chi Minh City, was the first 100% foreign-owned bank to enter the business in 2008. Also in this year, ANZ, Shinhan Vietnam, Standard Chartered, and Hong Leong were the banks participating indirect investment in Vietnam and also achieved positive outcomes. In the year 2016-2017, four newly founded banks, Public Bank Berhad, CIMB Bank, Woori Bank, and UOB, all had the good performances.
Cross-ownership:
Regarding the phenomenon of cross-ownership, in the Vietnamese banking system, according to Hung (2017), there are 6 different types of cross-ownership: Group 1 is the ownership of domestic and foreign banks in joint venture banks. ; Group 2 are foreign strategic shareholders in domestic commercial banks; Group 3 are shareholders in banks that are fund management companies; Group 4 is owned by state-owned commercial banks at joint-stock commercial banks; Group 5 is mutual ownership among joint-stock commercial banks; Group 6 is the ownership of joint-stock banks by state-owned and private corporations and corporations. In particular, mutual ownership among joint-stock commercial banks (group 5) is quite common in Vietnam and is one of the most prevalent kinds of cross-ownership.
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2.2. Real situation of the impact of ownership structure on the financial performance of Vietnamese joint-stock commercial banks with the State ownership of over 50% charter capital
Among the current seven government-owned commercial banks, three banks GPbank, Oceanbank, and CB bank were acquired by the State Bank for 0 dongs because of their poor performance in order to ensure the safety, stability, and order of the banking system as well as protect the interests of depositors. The remaining four banks, including Agribank, BIDV, Vietcombank, and Vietinbank since its establishment, are considered the "Big 4 banks" in Vietnam, always holding the leading position in terms of assets size, total mobilized capital as well as outstanding loans. In this thesis, the phrase “state- owned commercial banks” is used to refer to this group of four banks. Although some private banks are developing very quickly, when it comes to the influence on the market, the business activities of this group of 4 banks have always received great attention from investors or the banking industry workforce. Which, three banks BIDV, Vietcombank, and Vietinbank in the past 10 years have successfully equitized, switching from 100%
state-owned banks to Vietnamese joint-stock commercial banks with the State ownership of over 50% charter capital. Changes in ownership structure such as a decrease in state ownership and an increase in foreign ownership have affected the way of governance and operation, thereby affecting the financial performance of the aforementioned banks.