HA NOI (Biz Hub) — Domestic commercial banks can forge strategic co-operation with foreign investors if they clear their bad debts and prove their future potentials, analysts say.

An article in the Dau Tu Chung Khoan (Securities Investment) magazine cites analysts as saying that while Viet Nam's banking and financial markets are quite attractive, foreign investors will not step in or could even withdraw capital from a bank if they think future benefits are likely to be small.

The State Bank of Viet Nam's Circular 38 mentions that a foreign investor can buy stakes in a bank only if it is committed to long-term co-operation, will support the bank with modern technology to develop products and services, and help the bank with its internal administration.

It also states that a foreign individual, foreign organisation and strategic investor cannot own more than 5 per cent, 15 per cent and 20 per cent respectively of a bank's chartered capital.

Foreign investors are likely to carefully review and evaluate local banks to avoid losses, especially those that are engaged in restructuring themselves, the magazine says.

It also cites bank leaders as saying it would be easier for them to attract foreign investment if they could clear their bad debts and improve their financial health.

Vo Hoang Tan, General Director of Saigon Commercial Bank (SCB) said foreign investments would help the bank develop new development strategies. He also mentioned the possibility that foreign investors raise their stakes to take control of local banks.

He said that despite prevailing market problems, SCB successfully raised its chartered capital in 2013 and 2014, which now stands at VND14 trillion (US$666.6 million), including a foreign investment of VND2 trillion ($95.2 million). This raised foreign ownership in the bank to 15 per cent, he added.

SCB also successfully sold bad debts of VND12 trillion ($571.4 million) to the Vietnam Assets Management Company (VAMC), reducing its bad debt to one per cent at the end of last year.

Singapore's Fullerton Financial Holdings (Full), strategic shareholder of the Mekong Development Bank, however, will sell its 20-per-cent stake to Maritime Bank when the latter merge this year, and is seeking to invest in other local banks, the magazine reports.

United Overseas Bank (UOB) is now a strategic shareholder of the Southern Bank with a 20 per cent stake and is expected to raise its to 25 per cent when SB bank merges with Sacombank (expected to happen before June).

The magazine cites an unnamed representative of a foreign investment fund as saying Vietnamese banks have great opportunities to work with foreign investors.

However, the Government should raise the percentage of shareholdings for strategic investors in the long-term interests of the banking sector, he said.

Foreign investors could own more than half or even the entire stake in Vietnamese commercial banks if they were allowed, he added. — VNS