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‘Room’ for foreign ownership ratio in banks should be raised to 35%
Chairman of the State Securities Commission (SSC), Vu Bang, when forecasting that the national economy in general and the stock market in particular will still face big difficulties in 2009, said that the SSC will continue applying long term measures to perfect the market.
2008 proved to be a challenging time for Vietnam’s stock market. Could you please give us an overview of the market?
You may well know that in the first two-thirds of 2008, we had to focus on fighting inflation, and then dealing with the problems like high trade deficit and fluctuating exchange rates which threatened the macroeconomic stability, the operation of finance and credit institutions and the lives of people. In such conditions, it was understandable that the stock market could not make big leaps like it did in previous years.
Regarding the capital mobilization, the capital raised through the stock market in 2008 saw a decrease of 75-80% over the previous year.
The demand decreased because we prioritized the fight against inflation and applied the tightened monetary policies.
Secondly, the input material prices skyrocketed and the bank deposit interest rates increased which both influenced the production capacity of enterprises and the stock prices.
Thirdly, the stock market once had a hot development period which prompted enterprises to issue stocks to mobilize capital, leading to the dilution of stock value and the sharp falls of the stock prices.
In such difficult conditions, foreign investors tended to withdraw capital from securities, especially from Government bonds. In June alone, some VND 7 trillion worth of capital was withdrawn from Government bonds.
You might see that the stock market operated in very difficult conditions: the prices, liquidity and transaction volume decreased by 70% over the previous year. Securities companies suffered heavy losses or saw profit decrease sharply, while investment funds saw the net asset value decrease dramatically.
You have said that the stock market operated in very difficult conditions in 2008. But do you think that the market had effective resistance?
The stock prices tumbled in the last time with the price decrease of up to 23% in October. However, you can see that the Government took drastic measures to ensure the macroeconomic stability, and I can say that Vietnam’s stock market could resist well and avoid big upheavals thanks to the drastic measures and the cooperation of ministries and branches in implementing policies.
The SSC itself could keep close watch over the market performance, learn from international experience and make timely decisions to help create the resistance to the market, which all helped avoid the massive withdrawal of the foreign capital.
2009 is predicted to be a very difficult year for both the national economy and stock market. What will we have to do to overcome the difficulties?
I think that in 2009 we will have difficulties in struggling to reduce trade deficit as our exports may decrease. Foreign direct investment (FDI) may decrease, while portfolio investment may not increase which will pressurize the payment balance, thus affecting the exchange rate and macroeconomic stability. Therefore, I think that one of the priorities is to boost exports and limit imports.
Regarding the investment policies, I think that we need to strengthen the advertisements to attract investment. We have been focusing on attracting FDI, while having not paid appropriate attention to attract portfolio investment.
We need also encourage the listing of shares on foreign bourses, but this should be carried out step by step. It is necessary to associate the stock issuance and the listing. The issuance in Vietnam and listing abroad will not help attract foreign investment.
In order to make the market more attractive, I think it is necessary to adjust the ownership ratio. Under the current regulations, the maximum foreign ownership ratio in listed companies is 49%, and I think that the ratio should also be raised to 49% for unlisted companies.
Besides, I think that we should also raise the foreign ownership ratio in banks. We have allowed setting up 100% foreign owned banks in Vietnam, while we only allow the maximum capital contribution of 30%. I think that ratio should be raised to 35% to make banks more attractive to foreign investors.
VnMedia, BTC
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