GlobalCapital asking Oliver Massmann on Capital Markets,Banking and Investment issues in Vietnam

1. GlobalCapital asking Oliver Massmann on Capital Markets,Banking and
Investment issues in Vietnam - Here are Mr Massmann's answers:
Question 1: The Vietnam government has made a raft of announcements/changes this year to
improve its capital markets – why have those changes been made, and what’s been the impact
so far?
Answer:
 Compared with other ASEAN countries, the stock market capitalization in Vietnam is
quite small in terms of its contribution to the GDP (only 25% while in Singapore and
Thailand, this number is 112% and 135% respectively).
 The stock market is almost unable to support the privatization process of US$25
billion worth state-owned enterprises in the next three years.
 Thus, it is necessary to open up the stock market to foreign investors rather than
depending only on capital locally mobilized.
 Despite the current efforts by the government and its ambitious targets from the
beginning, the growth of the Vietnam’s stock market is -0.77% from the beginning to
May this year. Privatization process of state-owned banks is still slow. Some listed
companies one have limited number of stocks for sale compared with state-owned
stocks. These are the major obstacles facing by foreign investors when participating in
the market.
Question 2: How is the banking industry in Vietnam at the moment? There’s been a wave of
consolidation recently – what fueled it?
Answer:
 2015 is the last implementation year of the Plan on restructuring the whole system of
credit institutions during 2011-2015 period.
 The banking industry is experiencing a strong process of re-structuring, as directed by
the leaders of State Bank of Vietnam to reduce the number of banks to 20-25 with an
attempt to tackle bad debts (targeted at under 3%) and improve the banking
environment.
 M&A activities will continue to be buzzing. The bank will be more active in finding
new foreign strategic partners when the pressures from competition and capital
requirements may push smaller banks to look for new foreign investors to achieve
expansion
 To resolve the problems, the weak banks will be merged with the other big banks.
 Over the time, banks themselves also recognize the importance of restructuring to
ensure their financial capacity and competitiveness in the market.
 There remain certain risks of non-performing loans.

Question 3: Vietnam central bank taking over shares in troubled banks? Is that a good move?
Answer: Yes, the State Bank of Vietnam is buying shares of certain troubled banks (for
example, GP Bank, Ocean Bank, Vietnam Construction Bank). This is the Government’s

2. attempt to deal with bad debts, financial losses made by the banks and their low management
quality. This is a good move by the Government, so that it can be more active in restructuring
these banks and prevent other banks from being affected by troubled banks.
Question 4: Easing rules on foreign ownership limits – impact of that?
Previously, foreign ownership ratio in public listed companies is the same for all sectors and
subsectors. Decree 60 now provides different foreign ownership ratio for each sector and
subsector:
 Requirements on foreign ownership limits in international treaties to which Vietnam
is a party will prevail;
 In case public listed companies do business in sectors, subsectors where foreign
ownership limits are stipulated by the investment law and its related requirements,
such limits will apply;
 In case public listed companies do business in conditional sectors or subsectors
applicable for foreign investors but there is not yet a specific requirement on foreign
ownership limit, such limit would be 49%;
 In case public listed companies do business in different sectors or subsectors with
different requirements on foreign ownership limits, the applicable foreign ownership
limit will not exceed the lowest foreign ownership limit required for sectors or
subsectors that the company does business in, except otherwise stipulated by the
international treaties;
 There would be no limit on foreign ownership ratio for other public listed companies,
except otherwise stipulated by the company’s charter.
More foreign investment in the market and the privatization process will be boosted.
Question 5 :Government also trying hard to increase share sales/privatization in companies,
but it’s been a slow moving process. What are the challenges to get this going?
Answer: The privatization process has been very slow and only by name. Only 5%- 20% of
the shares are offered for sale, which is too low to attract foreign investors. They will be
reluctant to invest in these enterprises as long as they have a chance to gain decision-making
power by purchase of shares.
The Government must make stronger attempts and ensure that the privatization be
substantial in practice rather than just meeting the numbers of enterprises being privatized.
Question 6 : What is the government trying to achieve by all the recent announcements?
Answer : Controlling non-performing loans, preventing losses for banks, creating liquidity
for the market after the privatization, creating competitive and attractive investment
environment.

3. Question 7: There’s always news about banks having too much bad debt/accounting
problems etc. How is this being tackled?
Answer :
 Referring to the said above at question 2, there is a restructuring process and the
attempt to implement new banking products
 Credit institutions should shift to mid-term and long-term loans to restructure a short-
term loan without masking a bad debt
 it would be important to make sure that the debtor is able to finance a long- or a mid-
term loan and the banks should be given the tools to do so
***
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if
you have any questions on the above. Oliver Massmann is the General Director of Duane
Morris Vietnam LLC.
INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz
THANK YOU VERY MUCH!