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Foreign institutions concerned about draft bank law
Foreign banks have expressed deep concern about a provision on credit limits in the draft amendments to the law on credit organizations.
Total loans for a single client are capped at 15% of a bank’s or a bank branch’s equity capital, according to the draft law. And total loans for a customer and a related party must not exceed 25% a bank’s or a bank branch’s equity capital.
The current regulations are fairly lax as foreign bank branches can maintain loans for a customer and a related party at a level based on the offshore parent bank’s equity capital.
Speaking at a seminar on the law on credit organizations and that on the State Bank of Vietnam, Akihiro Saito, general director of the Hanoi branch of Japan’s Mizuho Corporate Bank, said he was worried about Article 128 of the draft law on credit institutions.
He proposed the Government maintain the status quo; otherwise, foreign banks will have to either slash credit for customers or scale up capital to meet the new capital requirement.
“In case foreign bank branches are unable to increase capital, then they will have to cut loans for many customers,” he said. “It’ll be extremely difficult to provide new credit limits for customers, thus affecting foreign investors’ decisions to do business in Vietnam.”
Banks are practicing great prudence at a time when the world economy is still reeling from the financial crisis, so the possibility of raising capital for foreign bank branches here is not actually high, he noted.
“The proposed changes to Article 128 will leave a negative impact on the Vietnamese economy and the corporate sector’s business operations,” Saito said.
Sharing Saito’s view, Do Thi Thanh Thuy of the Korea Exchange Bank’s Hanoi branch said there were now three South Korean banks operational in Vietnam with combined capital of US$60 million, but 15% of that amount would not be enough for their single customer who had already received a loan of US$20 million to finance a project in Dung Quat in Quang Ngai province.
“Around 60% of our customers have borrowed more than US$4 million each,” Thuy said.
A representative of the Vietnam Business Forum’s banking sector working group represented by the largest number of foreign banks active in Vietnam also brought to the seminar a report detailing a long list of recommendations for the draft law.
Under Provision 1 of Article 128 of the draft law, foreign bank branches will be forced to completely overhaul their lending operations in Vietnam, says the report.
The report adds that if the regulations in the draft law were passed, foreign bank branches would have no choice but to take back part of the loans already given to their customers or transfer the excess to their offshore institutions. This is actually a discrimination against foreign banks and a protectionist measure for local banks, according to the report, and the resulting outcome will be the lack of a level playing field for all.
Over the past 10 years, the report says, the practice of using the capital of an offshore bank as a basis for deciding a maximum loan for a single customer in Vietnam has brought no negative impact on bank safety.
As for legal matters, the newly proposed regulations on credit limits do not have a sound legal basis as foreign bank branches are not a juridical person here in Vietnam under the prevailing rules but will be bound by credit restrictions and will also have to secure guarantees from their offshore parent banks.
Expressing worries about the draft amendments, Duong Thu Huong, Chairwoman of the Vietnam Banks Association, said she wished these would have been typos.
VietNamNet, SGT
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