United Overseas Bank Limited (UOB) is reportedly finding out about GP Bank, one of the weak banks that have to undergo the compulsory restructure per the State Bank’s request. Meanwhile, the government is considering raising the ceiling foreign ownership ratio in some banks.
Both the factors give reasons to believe that Vietnam may, for the first time in history, would let a foreign institution to completely control a domestic commercial bank.
In order to acquire GP Bank, UOB would have to withdraw its capital from Phuong Nam Bank, unless the State Bank changes the current policy, allowing one foreign investor to possess two credit institutions.
It is clear that 20 percent of GP Bank stakes would be less attractive than 20 percent of Phuong Nam Bank. Meanwhile, if acquiring GP Bank, UOB would have to spend big money to settle bad debts and the stockholder equity shortfall.
This means that UOB would only take over GP Bank if the profit it can get is bigger than the 20 percent of GP Bank stakes.
Therefore, analysts have every reason to believe that UOB would be the first bank to be allowed to hold the amount of GP Bank’s stakes higher than the ceiling level, which means that it would have the right to control the bank.
There is another reason that makes the commercial affair more feasible that GP Bank’s scale is small, which means that its transactions would not affect the market.
The draft legal document on dealing with weak banks comprises of a provision that in some specific cases, the foreign ownership ratio in a weak bank could be higher than the currently applied ceiling level if this is approved by the Prime Minister.
This spells that holding a high percentage of stakes to have the right to control a bank may be allowed in Vietnam.
Another scenario has been predicted for GP Bank: it would become a 100 percent foreign owned bank. If so, UOB would be able to hold its stakes in Phuong Nam Bank.
GP Bank is not the only bank that foreign investors target for their long term investment plans. MDB Bank and Fullerton Financial Holdings, for example, have been cooperating well.
Fullerton, a subsidiary of Singaporean Temasek, bought 15 percent of MDB stakes in 2010 and then raised its ownership ratio to 20 percent in 2011 to become the strategic shareholder of the bank.
MDB is much smaller than other banks in terms of credit scale and assets. However, its business efficiency is really desirable for others.
Focusing on providing loans to the agriculture production and to workers, the bank got the high credit growth rates of 34 percent and 124 percent, respectively, for the two sectors in 2012. Meanwhile, the bad debt ratios were very low at 3 percent and 1 percent, respectively, in the same year.
Foreign investors have been trying to increase their influences to domestic banks. In October 2013, two senior executives from Maybank were appointed to the key posts at An Binh Bank.