Government should hold controlling interest in only two banks

In a discussion with SGGP Investment & Finance on the issue that the State Bank requires other ministries to resolve the current legal problems and proposes the Government and National Assembly revise the legal framework in a way that the regulations will allow the government to use the state treasury budget to increase the chartered capital of state owned banks, Dr. Tran Du Lich, former Deputy Head of the National Assembly Delegation of Ho Chi Minh City said: 

The proportion of state capital in BIDV is too large, up to 95.28%.

The proportion of state capital in BIDV is too large, up to 95.28%.

It will be good if the National Assembly can find the solution to increase the chartered capital of the state owned banks but still ensure the control and management of government at these banks.

Practically speaking, in the previous meetings, the National Assembly had a resolution to require state owned corporations and companies to set aside a part of their earnings to transfer to the National Budget for public investment and reduce the government debt burden.

However, using the state treasury budget to increase the chartered capital of state owned banks will violate the Public Investment Law. Hence most state owned banks face difficulties when they want to increase capital to meet the requirements of the State Bank on the size, liquidity, deposit and loan structure.

So, we should clarify the method to help state owned banks increase their capital. Should we take back the dividends from these banks then use it as investment to increase the chartered capital? Or should we reduce the number of banks that governments hold controlled ownership of to have more funds for investing in the core banks that the government decides to maintain its control, such as banks that government continues to hold more than 65% stake.

JOURNALIST: - Do you think there is probability that the proposal of the State Bank will be approved?

Dr. Tran Du Lich: - According to Public Investment Law, increase of chartered capital of state owned enterprises is considered mid-and-long term public investment. The National Assembly has allocated the capital for public investment for the period 2016-2020, hence, it is not able for now to use the national budget to increase chartered capital of banks. In my opinion, in the short term the government may use the dividend to help state owned banks increase the chartered capital.

However, the problem here is most of these dividends have already been allocated for other public investments. Hence, if we take these dividends as the source to increase the chartered capital, the government will not have enough budget to invest in other planned projects. This is the key issue that needs to be resolved.

Government should not invest significantly in all state owned banks, it should focus on some sizable and healthy banks to maintain a controlling interest. It should divest from other banks to have more funds to invest in these core banks. This method will help reduce the burden of government budget.
The problem is more significant in some state owned banks which are already privatized. While other investors want to retain the earnings to increase chartered capital, the state investors want to take back the dividends. This conflict must be resolved. I think, to have more funds and to continue holding 65% stake in some state owned banks, the government should reduce its ownership in other banks where the government currently holds more than 65% stake.

Currently, we have four state owned banks. Should the government continue to control all of these four banks? In my opinion, we do not need to hold on to all of them. The government should choose some of them to hold controlling stake. In these core banks, the government can cooperate with the remaining 35% private investors to push up the growth of the banks.

This is the way to implement the strategy to make some Vietnamese banks become big as other regional banks. To achieve this target, the government capital should not be diversified to all state owned banks. It should choose some core banks to strongly invest in them. This way will also help reduce the budget pressure.

- In your opinion, in how many banks should the government have control?

- I think, government should hold the controlling interest in only two banks and strongly focus to invest in them. The government should divest their stake in other banks to have funds to invest in these two banks. If the government has only two banks which are listed in the stock exchange, we can focus on developing them to become regional banks or for listing on foreign stock exchange.

In other regional countries, the government only owns 65% stake in listed state owned enterprises. In case these companies increase their capital, the government ownership still remains at 65%. Hence, we should not invest in too many banks, two banks are enough to lead the industry.

- Over the last time, several foreign investors have discussed and negotiated to buy government stake in some banks. However, many experts said that the slowness in selling shares to foreign investors is caused by a complicated and time wasting approval process that directly causes the difference between market price when signing the investment memo with the price at the time of sales contract. In case the market price goes down after signing the memo, the state owned banks are hesitant to sign the sale contracts as they are afraid of creating a loss in government capital. What do you think about this issue?

- This is a technical issue. To resolve this problem, when increasing, decreasing or divesting the capital, we should have an independent consultor who will objectively determine the share value and selling price based on the market mechanism. If we implement this transparently, we will avoid this problem.

Some people suggest the government raise foreign ownership limit to help banks increase their capital more easily. However, I think the government does not need to do this. Currently, the government has already increased the room for foreign investors in some small and weak banks to restructure them. For the state owned banks, the government should find another way to increase capital and should raise funds from domestic investors, rather than foreign investments.

In the short term, we attract foreign investments to restructure the weak and small banks as well as resolve the current systematic issue of banking system.

For the longer term, the government should consider in which banks it should hold more than 65% stake. Government should also have a detailed plan to regulate the foreign ownership limit in these banks.

Fund raising from foreign investments should be done in parallel with fund raising from domestic investors. We should not depend so much on foreign investment sources.

- Thank you very much.

Yen Lam (Interniewer)

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