Foreign bank branches to struggle to lend in 2011

Foreign bank branches in Vietnam will face difficulties in lending operations due to restrictions by the new Law on credit institutions coming effective in early 2011, the local newswire Sai Gon Times reported.

According to new regulations passed on June 16 this year by the National Assembly, the maximum credit line for a borrower will be based on the capital of foreign bank branches instead of their mother banks in foreign countries as currently allowed.

This restriction may negatively affect the lending operations of foreign bank branches in Vietnam who have disbursed capital for big projects from their mother banks’ financial resources, the local media reported.

Meanwhile, current charter capitals of most foreign lenders’ branches in Vietnam are only about $15million or VND300billion as required.

If these lenders cannot scale up their legal capital by 2011, they will have to reduce their credit line for their customers to maintain profits, explaining why many foreign bank branches have recently rushed to raise capital.

The central bank on December 21 approved four foreign bank branches to raise charter capital from their mother banks, in which Huanan Commercial Bank Ltd – HCMC branch increased capital to $65 million from $15 million, Chinatrust Bank’s HCMC branch raised capital to $50 million from $15 million, and HCMC and Hanoi branches of Mizuho Corporate Bank revised up their capital to $133.5million from $15 million each.

Earlier this month, at the Vietnam Business Forum held in Hanoi the Banking Working Group (BWG) proposed the SBV to mull 5 issues to minimize negative effects of the new regulations on the economy.

The National Financial Supervisory Commission also proposed the government to review its cap on the foreign bank branches’ credit lines. – Stoxplus.com

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial