Increasing Foreign Investment in Vietnamese Banks to Attract International Capital
In a significant move towards financial liberalization, Vietnam has increased the foreign ownership limit in local banks from 30% to 49%. This change, outlined in Decree No. 69/2025/ND-CP, introduces exceptions to the general foreign ownership cap for joint stock banks.
The receiving bank must adhere to certain conditions to qualify as a transferee. It must have been profitable for the two years preceding the transfer, comply with prevailing prudential ratios, and prepare a feasible mandatory transfer plan. Notably, the bank must not be more than 50% state-owned, and the foreign investor's share acquisition must occur during the mandatory transfer period as prescribed by the approved mandatory transfer plan.
There is a separate cap of 15 percent for a single institutional investor and 20 percent for a single strategic investor. The 49 percent foreign ownership limit refers to the aggregate foreign ownership, not the ownership cap for a single investor or affiliated group. The law sets no specific upper limit in this case, effectively leaving the cap to the Prime Minister's discretion.
In extreme cases, the prime minister may approve higher foreign ownership on a case-by-case basis to safeguard systemic stability. This authority is vested in the Prime Minister's office or through the Prime Minister’s decision-making based on government regulations.
By comparison, Indonesia allows a single foreign financial institution to hold up to 40 percent of a local bank's equity, with the aggregate foreign ownership permitted to reach up to 99 percent. Vietnam's policy approach has been broadly aligned with that of Malaysia, where foreign banks are permitted to establish wholly owned subsidiaries, but foreign investors may acquire only up to 30 percent of the equity in existing local banks.
The exception applies only to 'non-performing banks', which include banks under special supervision, banks being the subject of a mandatory transfer, and banks rated as 'weak' by the State Bank of Vietnam (SBV). Foreign investors approaching the 49 percent ownership threshold in Vietnamese banks gain substantial governance powers, including the ability to request extraordinary shareholder meetings, nominate board candidates, and access corporate records.
Truong Nhat Quang, the managing partner at YKVN, and Duyen Ha Vo, a senior partner at Vietnamese law firm VILAF, have provided insights on this development. Quang noted that the increase of the foreign ownership cap to 49 percent for transferee banks under mandatory transfer plans can be seen as a step toward greater liberalization in Vietnam's banking sector. Vo added that the exception is a positive step towards addressing the issues faced by non-performing banks and promoting investment in the sector.
This change in policy marks a significant shift in Vietnam's approach to foreign investment in its banking sector. As the country continues to liberalize its economy, further changes in the foreign ownership limit can be expected in the future.
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