Foreign banks wary of having to increase capital

Foreign financial institutions active in Vietnam have called ‘unreasonable’ a tentative requirement that they increase their chartered capital to five trillion dong by 2012, and ten trillion dong by 2015.

VietNamNet Bridge – Foreign financial institutions active in Vietnam have called ‘unreasonable’ a tentative requirement that they increase their chartered capital to five trillion dong by 2012, and ten trillion dong by 2015.

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The State Bank reportedly has in mind rolling out such a requirement after a framework law on credit institutions is approved by the National Assembly.  That may happen in the Assembly’s current session, according to a story in Thoi Bao Kinh Te Vietnam.

Current law requires both domestic and foreign financial institutions to have three trillion dong ($158 million) in chartered capital by the end of 2010.

Speaking for 30 foreign bank branches, bank representative offices and foreign finance companies in Vietnam, Chairman Tom Tobin of the ‘Bank Working Group,’ an ad hoc body, told the Vietnam Business Forum that the proposed minimum capital requirements may be unattainable by many commercial banks.  In that event, they may be forced to merge with other institutions or cease operations.

The State Bank of Vietnam is drafting a document which stipulates the chartered capital that credit institutions must have to be able to operate in Vietnam.

Tobin, who is also General Director of HSBC Vietnam, noted that the draft document does not specify the legal capital levels applied to foreign bank branches, and asked the Government’s compilation committee to clarify this in the draft document.

Responding to the concerns expressed by foreign banks, Deputy Governor Nguyen Dong Tien of the State Bank explained that a higher chartered capital requirement will help improve the competitiveness of Vietnam’s commercial banks in the context of international integration. The State Bank’s objective, in line with international practice, is to ensure that banks operate effectively and safely.

Tien confirmed that the State Bank is considering applying the requirement also  to foreign bank branches, but it has not yet fixed an amount.  “However, the minimum legal capital applied to foreign bank branches ought to be set up at a level that’s reasonable in comparison with the capital of [Vietnamese] commercial banks,” Tien said. 

Tien stressed that the draft document on the legal capital of commercial banks has not yet been submitted for Government review. “We will still listen to you,” he assured Tobin.  “We will collect opinions about the draft, and we will also refer to international practice.”

BWG has also protested that it would be unreasonable to limit the credit that banks are allowed to provide to a single client.

Article 128 of the draft document would limit the total loans that may be provided by commercial banks to one client to not more than 15 percent of the stockholder equity of a bank’s subsidiary in Vietnam, or 15 percent of the capital of a foreign bank branch.

According to Tobin, the current limit on credit banks may provide to one client is no more than 15 percent of the stockholder equity of the parent banks, not of the Vietnamese subsidiaries.  If the directive’s Article 128 is approved as presently drafted, foreign bank branches will have to ask parent banks to increase their capital in the event that loans to any one client exceed the 15 percent limit.

This, according to the BWG, will affect Vietnam’s foreign indebtedness, hinder the ability of existing foreign bank branches to do business in Vietnam, and become a barrier to the entry of new participants in the nation’s financial markets.

Though insistent that the proposed Article 128 is in line with the current laws, Tien promised to consider the issues raised by the BWG thoroughly.

Source: Thoi bao Kinh te Vietnam

Tags: Bank Branches, Chartered Capital, Commercial Banks, Draft Document, Foreign Bank, Foreign Bank Branches, State Bank, The Draft, The Draft Document, The State, The State Bank, To Foreign Bank, To Foreign Bank Branches, Physics games

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