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SBV sets stricter rules on new bank establishment
The statements made by the State Bank of Vietnam recently make people understand that while Vietnam is still busy “putting the banking system in order,” it would nearly say “no” to the establishment of any new banks.
Pham Chi Quang, a senior executive of Vietcombank, one of the biggest banks in Vietnam, has noted that while the number of commercial banks in Vietnam is really big, the number of products they are providing remain modest, less than 100 products. Meanwhile, in the US, the number of products provided by the country’s banking system once reached 6-digit level.
Experts have many times warned that Vietnamese banks have bad corporate governance skills. However, this proves to be not the only reason behind the modest number of the services provided by the banks. Another reason has been cited is that the total assets of banks are too small.
Nguyen Van Binh, when speaking before the latest National Assembly’s session, admitted that in the region, a medium class bank has the total assets of 50 billion dollars on average. Meanwhile, Agribank, which is considered the biggest Vietnamese bank, only has the total assets of 25 billion dollars.
It seems that the State Bank feels impatient about the too small scale of commercial banks. Therefore, in the plan to restructure the banking system, it has set up a goal of obtaining one or two banks powerful enough at the regional level by 2014-2015.
The State Bank of Vietnam has also stated that in 2012, it would complete the dealing with weak banks. Meanwhile, in 2013, the merger and acquisition of banks would continue, but this would focus on consolidating the activities and expanding the scale of banks. The process is expected to basically complete by 2014-2015.
Especially, in a move to tighten the conditions on bank establishment, the State Bank has issued the Circular No 40 which takes effect as of February 1, 2012, stipulating very stern conditions on new banks.
The legal document says that the founding shareholders of banks must not be the founding shareholders, owners or strategic partners of another credit institution. Besides, institutional founding shareholders must make profits in the last five consecutive years before the day they apply for setting up new banks. As for the founding shareholders, who are commercial banks, they must have the total assets of 100 trillion dong at minimum.
With such strict regulations, experts have commented that the central bank has sent a message that no new bank would be licensed at least in the next five years, except the new banks to be set up from the merger and acquisition (M&A) of the existing banks.
In the future, 20 percent of the market share would be reserved for some small banks which operate in some specific market segments. This means that the small banks operating in different fields and different markets, but do not make profits will be swallowed sooner or later.
Commenting about the “iron discipline” to be applied by the central bank, finance experts, on one hand, think that restructuring banks is a necessity, on the other hand, say that it is not advisable to too appreciate the total assets and scale of banks.
“A big bank with huge total assets does not always mean a powerful and safe bank,” said Dr Ha Thi Sau from the Banking Academy.
Dr Nguyen Dac Hung, a well known finance and banking expert, also said that Vietnam has 1100 people’s credit funds which have the total assets of 15 billion dong only, but they have been operating very well.
Hung said that since the corporate governance skills of Vietnamese banks remain problematic, it would be better to allow the existence of small banks, rather than requesting them to merge into bigger banks, while the corporate governance skills cannot be upgraded.
vietnamnet
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