Vietnam to limit new foreign bank licenses to encourage local acquisitions

People ride motorcycles past a branch of VietinBank in Hanoi. (Reuters pic)

HANOI: Vietnam said on Thursday it will limit or possibly stop issuing new licenses for foreign banks to set up in the country as it looks to encourage takeovers of weaker local lenders and strengthen the financial system.

“Soon, Vietnam will strictly limit, or may stop issuing news licenses for 100% foreign-owned banks in the country,” Deputy Prime Minister Vuong Dinh Hue said in a statement posted on the government website.

The move is expected to boost merger and acquisition activity in the sector, with the goal of turning smaller financial institutions into larger ones, according to the statement.

Hue said foreign investors will still be allowed to buy stakes in or own weak local lenders, and added that the government will sell or forcibly transfer the fragile banks that it has bought.

Vietnam has so far licensed around ten wholly-foreign-owned banks, such as HSBC Vietnam, Standard Chartered Vietnam, Hong Leong Vietnam, CIMB Vietnam, according to the State Bank of Vietnam, the country’s central bank.

In 2015, the central bank forcibly bought three loss-making privately-owned banks at zero cost as part of its efforts to restructure the banking system, then burdened with high levels of non-performing loans, and to keep the system from collapsing.

These include Dai Tin Joint Stock Bank, Ocean Commercial Joint Stock Bank and Global Petro Commercial Joint Stock Bank.

Fitch ratings agency raised Vietnam’s sovereign credit rating in May but warned its banking sector is structurally weak and non-performing loans remain under-reported.