Experts suggest the foreign ownership limit should be 49% to make the country’s finance and banking sector more attractive to foreign investors.

The government will implement a pilot project to allow foreign investors to hold a higher stake in some conditional business lines that have a direct impact on Vietnam’s economic safety and security.

According to Vu Dai Thang, Deputy Minister of Planning and Investment, the foreign ownership limit in Vietnamese firms in the business lines, such as banking, telecommunications and aviation, will be permitted to be higher than the ratios regulated in the current laws, but the investors’ voting rights will remain unchanged.

 Currently, the foreign ownership limit is in place for the business lines to avoid giving foreign interests too much power. The maximum foreign ownership for banking and aviation sectors, for example, is 30%.

 According to experts, relaxing the limit on foreign ownership will further broaden the investment scale for foreign investors. The use of non-voting depository receipts may help foreign investors buy more shares in Vietnamese companies without raising their power.

 Buying non-voting depository receipts is an alternative option for foreign investors as they receive the same benefits in terms of dividends and warrants as those investing directly in a company’s ordinary shares. 

The difference between those buying ordinary shares and those buying non-voting depository receipts is voting rights. Non-voting depository receipts holders cannot be involved in company decision-making.

 Increasing attraction

 Foreign ownership limit regulation is one of main causes making the business lines, especially banking, less attractive to foreign investors. Domestic banks are currently finding it hard to lure foreign investors, especially prestigious financial institutions, as the foreign ownership in the sector is capped at only 30%.

 According to Ngo Long, associate director at the Research Department of Viet Capital Securities, investment trends in the banking industry will depend on when the government lifts the foreign ownership ceiling.

 Sharing the same view, banking expert Nguyen Tri Hieu said the current foreign ownership limit of 30% on the banking industry isn’t encouraging foreign investors to invest in local banks as they can’t be involved in banks’ decision-making with such holding rate.

 To make the country’s finance and banking sector more attractive to foreign investors, Hieu suggested the government should increase the foreign ownership limit to 49%.

 Oliver Massmann, general director of international law firm Duane Morris Vietnam, also believes the government should open up more room for foreign ownership in local financial institutions, as the foreign ownership limit in many lenders has nearly reached the permitted level.

 The government should also continue to complete the legal framework for the financial service sector to comply with its commitments under free trade agreements, thus raising investor confidence in the system and their willingness to invest further, he said.

 The same trend is also seen with the aviation industry, where the ceiling is also set at 30%. Representatives from VietJet Air expected the increase of foreign shareholding will not only boost the healthy performance of aviation transport firms through the application of modern management formats by foreign investors, but also prove the Vietnamese government’s open-door policy through allowing more foreign capital injection into the aviation sector which is capital-intensive and requires governance expertise.

 Several ASEAN economies have raised their foreign ownership limit in the aviation businesses, with Thailand and Indonesia to 49% and the Philippines to 40%, VietJet Air said, adding if Vietnam continues keeping the rate below the level applied in other regional countries, this could result in an imbalance between market entry conditions and investment environment openness, which will make it more difficult to attract foreign capital flows into the aviation transport sector.