|
New banks to face stiff regulations
A new draft regulation by the State Bank of Vietnam intends to impose stricter measures on the formation of commercial joint-stock banks in a move to ensure the effectiveness and stability of the local banking system.
New banks must have charter capital of 3 trillion VND (180.72 million USD), while existing joint-stock banks must show they have at least 1 trillion VND in charter capital by the end of this year, according to Le Xuan Nghia, director of banking strategy development for the State Bank of Vietnam .
“ The message is clear. That is, to limit weak banks from joining the local market amid increasing concerns about the spreading global-economic turmoil,” Vo Tri Thanh, director of the Department for Trade Policy and International Economic Integration Studies under the Central Institute for Economic management (CIEM), told the English language daily Vietnam News on October 7.
A new bank must have at least 100 shareholders, as at present. However, now each institutional founding shareholder must provide equity of at least 500 billion VND (30.12 million USD).
Moreover, an institution or enterprise that wants to be part of a new bank must show that it has operated its own business profitably for three consecutive years before applying.
“Such capital regulations are really strict, but good,” said Nguyen Thanh Toai, Deputy General Director of Asia Commercial Bank, a leading joint-stock bank. He told the Vietnam News on October 7 that many State-owned economics groups have sufficient equity of 500 billion VND, but they have been warned not to invest in the banking sector.
He said that setting up the core of a banking system cost at least 4 million USD alone. Those with such low potential have little chance of surviving.
State Bank expert Nghia said smaller private enterprises have almost no chance of opening a bank with such large registered capital.
Under current regulations, each bank which wants to become a founding shareholder of a new bank must have total assets of 10 trillion VND (1.25 billion USD), chartered capital of 1 trillion VND (62.5 million USD), and bad debts of less than 2 percent.
No institution shareholder is allowed to hold more than 20 percent of registered capital in the bank – and the limit is reduced to 10 percent for individual shareholders.
A financial institution that buys a stake as a strategic investor can hold up to 40 percent of shares and can acquire even more if the Prime Minister rules it to be in the national interest.
Moreover, in the first three years after the establishment of a bank, shareholders cannot transfer their stake. Founding shareholders are only permitted to transfer stakes to outsiders after five years.
Most of the new proposed regulations will be the same as under current rules.
The draft proposal also spells out a system of supervision of commercial banks and determines benefits for shareholders.
The checks include several in-house supervisory commissions and nine compulsory reports that must be ratified by the management board.
Vietnam’s banking system now includes five State-owned commercial banks, six joint - venture banks, 36 joint-stock commercial banks, 44 branches of foreign banks, 10 financial companies, 13 financial leasing companies and 998 people’s credit funds.
Since May, two new joint-stock banks have opened up – the Lien Viet Bank and Tien Phong Bank.
Some wonder if the number of banks is too high for a market with a Gross Domestic Product of about 70 billion USD annually.
But according to Thanh from the CIEM, the most critical issues lie in supervision and risk management.
”Placing conditions on opening new banks is in accordance with World Trade Organisation commitments,” he said.
At one period last year, about 25 applications to establish new banks were already on the State Bank’s desk.
To stop the rush, the State Bank tightened conditions on setting up banks by issuing Decision No 24/2007/QD-NHNN on June 7, 2007. However, two months later, the central bank reported having already received 12 applications from mostly large State-owned corporations and domestic financial institutions.
However, so far, only two banks (Tien Phong and Lien Viet) have started operation and another, Bao Viet Bank has been approved for a licence.
In August this year, the State Bank once again announced a temporary pause in licensing new banks while it compiled new criteria for setting up domestic joint-stock commercial banks.
The central bank will receive application to open new banks right after the new draft is finished and ratified by the PM.
VNA
|
