At long last - New opportunities for foreign investment in Vietnam’s banking sector

Insatiable demand for capital

The Vietnamese banking sector has long faced the dual challenge of raising sufficient capital to meet growing demands and complying with international standards, particularly Basel III, while navigating stringent foreign ownership limitations (FOL). Decree No. 01/2014/ND-CP (Decree 01), which previously governed the purchase of shares by foreign investors in Vietnamese credit institutions, had been criticized by both investors and local banks for its restrictive procedures and tight FOL, making capital raising inherently difficult. As Vietnamese banks increasingly strive for full Basel III compliance, the need for robust capital injections has become more pressing, often at odds with existing foreign participation ceilings.

Steps forward

In a significant development, Decree No. 69/2025/ND-CP (Decree 69), which become effective on 19 May 2025, ushers in new opportunities for Vietnamese banks to raise foreign capital, particularly for those involved in the restructuring of the banking system. This new Decree amends key provisions of Decree 01, signaling a more pragmatic approach to attracting foreign investment where it is most needed. Notably, for a commercial bank (having less than 50% of state-owned shareholding) acting as an acquirer in a mandatory transfer of a weak credit institution, the total FOL can now be temporarily increased from the standard 30% up to 49% of its charter capital during the execution of the approved transfer plan. This marks a strategic shift, recognizing that while previous attempts for foreign investors to acquire 100% of "zero dong" banks did not materialize, facilitating increased foreign investor participation in acquiring stronger Vietnamese banks that absorb weaker ones presents a more credible and viable path for sector stability and recapitalization.

But small steps…limitations remain

While Decree 69 provides promising avenues and opens the door to increased foreign participation in the banking sector, potential investors and banks should be mindful of several limitations and ongoing implementation challenges.

First, the immediate opportunities for such increased foreign participation may be limited, as the most prominent "weak banks" (Ocean Bank, Construction Bank, DongA Bank and GP Bank) have already been subject to mandatory transfer mechanisms to designated acquirers. While there may be other struggling institutions, the pipeline of explicit acquisition targets for which this higher FOL applies might not be extensive.

Second, practical implementation issues may arise, including the need for amending bank charters to reflect the new FOL, and navigating procedural requirements with the State Securities Commission (SSC) and the State Bank of Vietnam (SBV) for foreign share acquisitions. Currently, the eligible banks for FOL increase under Decree 69 still lock their constitutional foreign participation ceiling at or below 30%; please see below a table illustrating the specific FOL at each bank.

Finally, the Decree does not fundamentally address the overall single investor limits (e.g., the 20% cap for a strategic foreign investor and its related persons) which still remain in place for standard investments. While the 49% FOL for acquiring banks is a welcome increase for distressed scenarios, the broader limitations on individual strategic investors may still deter some long-term strategic foreign partners seeking more significant controlling stakes in healthy Vietnamese banks.

Decree 69 introduces a pilot initiative for increasing FOL at limited selected banks, which should act as a strategic move to both mitigate any potential risks to financial and monetary security and offer investment opportunities. Results from these pilot banks will offer valuable practical insights on attracting foreign capital, improving governance, and handling struggling banks, forming the basis for considering future policy expansion.

Conclusion and path forward

In summary, Decree 69 is the first significant amendment to Vietnam’s regulation of foreign investment in the banking sector since Decree 01 was introduced over a decade ago. As there is now a path forward for foreign investment to surpass 30% in a Vietnamese bank, Decree 69 reflects a welcome development and should be positively viewed by the market. However, the single foreign investor limitation remains bolted at 20% for a strategic investor and more detailed guidance will be required to implement Decree 69. We will continue to closely monitor developments in this sector.

In case you wish to discuss the implications of Decree 69 to your business or investment, please feel free to reach out to us.

Authored by David Harrison and Hanh Vu.