CHAPTER 2: REAL SITUATION OF OWNERSHIP STRUCTURE AND FINANCIAL
2.1. Overview of ownership structure and financial performance of Vietnamese commercial banks
2.1.1. Regulations related to ownership structure in the Vietnamese banking system
Up to now, the latest law on credit institutions that has been enacted is the 2017 law.
The 2017 Law on Credit Institutions was approved by the National Assembly on December 12, 2017 on the basis of the Law on Credit Institutions No. 47/2010/QH12 (issued on June 16, 2010) and Law No. 17/2017/QH14 of the National Assembly
"amending and supplementing a number of articles of the Law on Credit Institutions", effective from January 15, 2018. Compared with the 2010 Law on Credit Institutions, the 2017 Law stipulates notable new contents.
Regarding ownership in general, the 2010 Law on Credit Institutions has relatively specific and strict regulations. Accordingly, Article 55 of the Law on Credit Institutions 2010 stipulates that the limit on share ownership of a credit institution for individual shareholders is 5%, and for institutional shareholders is 15% (except for the case of owning shares under SBV to handle credit institutions in difficulty, guaranteed according to the system of credit institutions; Owning state shares in equitized credit institutions;
Owning shares of foreign investors with the maximum ownership ratio prescribed by the Government).
The Law on Credit Institutions 2017 introduces amendments and supplements in order to be transparent about the source of capital contributed by shareholders, to prevent cross-ownership such as adding more cases of ownership of more than 15% of charter capital with institutional shareholders and detailing exceptions for shareholders and related persons of shareholders. Specifically, according to Point a, Clause 2, Article 55
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of the Law on Credit Institutions 2017, organizational shareholders may own more than 15% of the charter capital when owning shares in a credit institution that is specially controlled under the restructuring plan approved by a competent authority; owning shares of a credit institution in a subsidiary or affiliated company specified in Clauses 2 and 3, Article 103, Clause 3, Article 110 of this Law. Clause 3, Article 55 stipulates:
“Shareholders and their related persons may not own shares exceeding 20% of the charter capital of a credit institution”, except for the case specified at Points a, b and c, Clause 2 of this Article; major shareholder of a credit institution and related persons of such shareholder may not own shares of 5% or more of the charter capital of another credit institution. In addition, similar to the Law on Credit Institutions 2010, the prescribed ownership ratios include the capital entrusted to other organizations and individuals to buy shares.
Regulations on share ownership of foreign investors:
From the Law amending and supplementing a number of articles of the Law on Credit Institutions No. 20/2004/QH2011, the government has allowed "foreign credit institutions to contribute capital and purchase shares of credit institutions operating in Vietnam". Specifically, the ownership of shares by foreign investors in Vietnamese credit institutions is clearly stated in the Law on Credit Institutions 2017 and Decree No.
01/2014/ND-CP “on foreign investors' purchase of shares of Vietnamese credit institutions”. Clause 1, Article 16 of the Law on Credit Institutions 2017 stipulates:
“Foreign investors may purchase shares of Vietnamese credit institutions”. Also according to Clause 2 of this Article, conditions, procedures, maximum total share ownership level of foreign investors, the maximum share ownership rate of a foreign investor in a credit institution Vietnam, conditions for Vietnamese credit institutions to sell shares to foreign investors must comply with the Government's regulations. Article 7 of Decree No. 01/2014/ND-CP clearly outlines regulations on foreign ownership ratio in credit institutions in Vietnam.
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Table 2.1: Regulation of share ownership rate for foreign investors in joint- stock commercial banks in Vietnam
Subject Maximum ratio on the total charter capital of the bank
A foreign individual Not exceeding 5% of the charter capital of a Vietnamese credit institution.
A foreign organization Must not exceed 15% of charter capital, except for strategic investors A foreign strategic investor Not more than 20%
A foreign investor and a person related to
that foreign investor Not more than 20%
Total share ownership of foreign investors Not more than 30%
Source: Article 7 of Decree No. 01/2014/ND-CP
Compared with the previous regulation (Decree No. 69/2007/ND-CP), the allowed foreign ownership ratio has been increased. This is practically consistent with the trend of international integration, creating favorable conditions for investors to participate in the Vietnamese financial market instead of having to establish a bank with 100% foreign capital. In addition, Articles 9 and 10 of Decree No. 01/2014/ND-CP also specify the share ownership conditions for foreign organizations that buy shares with ownership of 10% or more of charter capital and conditions to become a foreign strategic investor of a Vietnamese credit institution. In particular, Clause 6, Article 10 clearly states that foreign investors who want to become strategic shareholders must "not own 10% or more of charter capital in any other credit institutions in Vietnam". This helps prevent foreign investors from taking advantage of legal loopholes to acquire domestic banks.
Regulations on the representative of the owner of State capital at commercial banks:
According to Clause 10, Article 4 of the Law on the State Bank of Vietnam (Law No. 46/2010/QH12), the State Bank "acts as the representative of the owner of the State's capital in enterprises performing the functions and tasks of the State Bank, credit institutions with state capital as prescribed by law”.
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The rights and obligations of the State owner's representative in the investment of state capital in Vietnamese banks are specified in Decree No. 10/2019/ND-CP "on the exercise of rights and responsibilities of representative of the state owner” (effective from March 15, 2019), replacing Decree 99/2012ND-CP of the Government “on assignment and decentralization of exercise of rights, responsibilities, and obligations of the State owner to State-owned enterprises and State capital invested in enterprises”.
Decree No. 10/2019/ND-CP stipulates the owner's representative agency to exercise the rights and responsibilities of representing the owner of the state capital to invest in joint-stock companies, limited liability companies with two or more members through the representative of the state capital. (Clause 1, Article 13). For commercial banks in which the State holds more than 50% of charter capital (such as Vietcombank, Vietinbank, and BIDV), the State Bank will exercise the right and responsibility to represent the owner of state capital in investment through the representative of the State capital. Specific regulations on the representative of the state capital are stated in the Circular No. 21/2014/TT-BTC of the Ministry of Finance promulgating the “Operation Regulations of the Authorized Representative for the state capital invested in the enterprise” effective from April 1, 2014, and Decision No. 678/QD-NHNN “Regulations on direct owner representatives, state capital representatives at credit institutions, financial institutions and enterprises managed by the State Bank of Vietnam” effective from the date of signing for promulgation April 12, 2017.
Thus, SBV is both a state management agency and also acts as the State's owner's representative agency in state-owned commercial banks. According to the Law on Credit Institutions 2017, with respect to credit institutions or foreign bank branches, State Bank of Vietnam, as a state management agency, performs a number of tasks and powers such as approving changes to the charter capital level, listing on the foreign stock market,...
(Clause 1, Article 29); approve the tentative list of people elected and appointed as members of the Board of Directors, members of the Members' Council, members of the Supervisory Board, the General Director (Director) of the credit institution (Article 51).
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From the perspective of being the representative agency for the owner of State capital in commercial banks where the State holds 36% of charter capital or more, SBV also performs the task of operating the business through reports from the representative.
Previously, according to Decree No. 99/2012/ND-CP, SBV was allowed to perform important decision-making tasks such as charter capital level, charter capital change;
decide to appoint members of the Members' Council, the General Director, to nominate people to elect members of the Board of Directors for commercial banks. It can be seen that the authority of the SBV, as well as the State ownership in commercial banks with the state capital, has been reduced compared to before. This processing route helps the State Bank of Vietnam ensure the efficiency of both State management as well as the exercise of rights and obligations of the State owner's representative agency at commercial banks.
Other regulations on ownership in the commercial banking system:
The issue of equitization of government-owned commercial banks in Vietnam, the latest regulation is in Decree No. 140/2020/ND-CP “amendments to the Government's Decree No. 126/2017/ND-CP dated November 16, 2017, on the conversion of state- owned enterprises and whole state-owned single-member limited liability companies into joint-stock companies, the government's Decree No. 91/2015/ND-CP dated October 13, 2015, on state capital investment in enterprises, use and management of capital and assets in enterprises, and the government's Decree No. 32/2018/ND-CP dated March 08, 2018, providing amendments to Decree No. 91/2015/nd-cp”, detailing financial handling at banks upon equitization. SBV also issued Circular No. 10/2011/TT-NHNN
“Regulating criteria for selecting strategic shareholders for equitized State-owned commercial banks” to find reputable, suitable strategic partners, bring benefits for banks when equitization. Criteria for equitized State-owned commercial banks to select domestic and foreign strategic shareholders are specified in Article 3 of the circular.
Accordingly, for government-owned commercial banks that are in the equitization
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process, the criteria for selecting strategic shareholders are included in the equitization scheme to submit to the Prime Minister for approval.
Regarding the issue of cross-ownership, in general, the current law has prevented the phenomenon of cross-ownership among Vietnamese credit institutions. This is clearly stated in Clause 5, Article 129 of the Law on Credit Institutions 2017: “Credit institutions are not allowed to contribute capital to or buy shares from enterprises, other credit institutions are shareholders, capital contributing members of that same credit institution”; and all 3 clauses of Article 135. However, due to historical factors, there is still the fact that credit institutions contribute capital to many other credit institutions or have mutual ownership shares or some cases where credit institutions through their subsidiaries own shares of other credit institutions.