On 22 April 2011, the State Bank of Vietnam (SBV) released Circular No. 10/2011/TT-NHNN (Circular 10) providing criteria for selecting strategic shareholders for equitised state-owned commercial banks. Circular 10 aims to provide guidance to state-owned banks seeking strategic investors such as Vietcombank and the Bank for Investment and Development.
Circular 10 sets out applicable entities, the objectives for selecting strategic shareholders and their requirements, and criteria for such selection. These are discussed below.
Circular 10 applies to equitised state-owned commercial banks, comprising:
- State-owned commercial banks that are in the process of equitisation
- State-owned commercial banks that are equitised but are not listed on the stock market
- State-owned commercial banks that are equitised and listed on the stock market
Objectives and requirements
Circular 10 provides that the objective of selecting strategic shareholders is to seek investors with good reputations, financial capacity and abilities to assist in:
- Improving administration, governance capacity, and risk management
- Applying modern technology
- Developing banking products and services
- Developing other sectors in compliance with the development strategy of the state-owned commercial bank undergoing equitisation
To achieve the above objectives, Circular 10 requires a strategic shareholder to satisfy the following requirements:
- Having interests that match with the development strategy of the equitised state-owned commercial bank
- No conflict of interest
- No monopoly in unfair competition will be created with the customers and other investors of the equitised state-owned commercial bank and with other credit institutions
Criteria for selecting strategic shareholders
In terms of total assets, the criteria for a foreign strategic shareholder differs much from that of a domestic strategic shareholder as shown below.
A foreign strategic shareholder must satisfy the following minimum criteria:
- It is a foreign credit institution or foreign financial institution with total assets equivalent to at least USD 20 billion in the year preceding the year in which it registers to become strategic shareholder
- It has over five years' experience in international activities
- It is rated by international independent rate organisations such as Moody's, Standard & Poor's, Fitch Rating at a level that ensures an ability to implement its financial commitments and normal operation even when economic situations and conditions may change unfavourably
- It is not a strategic shareholder, major shareholder, or founding shareholder of any credit institution in Vietnam
- It has written commitments on assisting the equitised state-owned commercial bank in the sectors specified in Circular 10 and on long-term cooperation with the equitised state-owned commercial bank
A domestic strategic shareholder must satisfy the following minimum criteria:
- It is an enterprise with experience and good governance capacity
- It had total assets equivalent to at least VND 3 trillion (about USD 150 million) in the year preceding the year in which it registers to become strategic shareholder
- It has enough capital for contribution
- It has a return on equity (ROE) ratio of over 15%, and a return on assets (ROA) ratio of over 1% in the year preceding the year in which it registers to be strategic shareholder, and has a positive net profit for three preceding consecutive years
- It has no bad debt in any credit institution
- It is not a strategic shareholder, a major shareholder, or a founding shareholder in any credit institution in Vietnam at the time it applies to be a strategic shareholder
- It has written commitments on assisting the equitised state-owned commercial bank in the sectors specified in Circular 10
- It has written commitments on issues relating to long-term cooperation, lock-up periods, conflicts of interest, monopoly or unfair competition A domestic strategic shareholder being a credit institution must additionally satisfy the following criteria:
It must ensure that
- It maintains the limits ensuring its operational safety pursuant to SBV regulations
- It had capital adequacy ratio (CAR) of over 10% in the year preceding the year in which it registers to become strategic shareholder
- t had a bad debt ratio of below 2% in the year preceding the year in which it registers to be strategic shareholder
- A credit institution may not purchase shares from an equitised state-owned commercial bank which is a shareholder or a capital contributing member of that credit institution at the time when it registers to be a strategic shareholder
Selection of strategic shareholders
An equitised state-owned commercial bank must, based on Circular 10, set out specific criteria for selecting strategic shareholders to incorporate into the scheme of equitising a state-owned commercial bank (in respect of a state-owned commercial bank currently conducting equitisation) or the plan of selecting strategic shareholders (in respect of a state-owned commercial bank having been equitised) to submit to the Prime Minister for approval. Only after such approval is granted can the selection criteria be used.
Circular 10 takes effect as from 1 June 2011.