Foreign banks hesitate legal capital increase roadmap

The roadmap to hike chartered capital to 5-10 trillion dong as planned may be barrier for many banks. This is an opinion of Banking Working Group (BWG) that was announced at the Vietnam Business Forum held in Hanoi recently.

Representing for 30 branches and representative offices of foreign banks and finance institutions in Vietnam, Tom Tobin, HSBV Bank (Vietnam) Ltd’s general director, petitioned Vietnamese government and State Bank of Vietnam (SBV) about irrationalities in chartered capital regulation and the implementation of applying the ceiling credit limit for each customer.

According to Tom Tobin, the compulsory legal capital of 5-10 trillion dong for foreign banks till the end of 2012 and 2015 could cause many difficulties for lenders and they find it hard to meet this regulation.
Some recent analyses also showed that with this regulation, many small banks with weak potential may have to merge or dissolve.

Facing above worries, SBV’s deputy governor, Nguyen Dong Tien, explained that the regulation on legal capital of credit institutions is to enhance the competitive capacity for commercial banks in the current integration progress. And this will also be condition to help banks operate safely, effectively and suitably with the international norm.
As for the legal capital applying on branches of foreign banks, Tien said that SBV is studying and has not issued the detailed level yet.

“However, minimum legal capital requirement applicable to foreign banks’ branches will also be regulated to comply with the minimum chartered capital roadmap of domestic commercial banks” added Tien.

Additionally, foreign lenders are caring about the regulation of providing credit limit of not exceeding 15 percent of total equity of each bank to customer.

According to Tobin, all branches of foreign banks in Vietnam are now remaining the lending limit of 15 percent of ownership capital of the parent bank for each customer. And therefore, when this regulation takes effect, these branches will have to seek funding from parent banks for loans exceeding the 15 percent limit.

“This will affect the overall foreign debts of Vietnam and will be big obstruction for small foreign banks’ subsidiaries in business activities in Vietnam” analysed Tom Tobin.

Tien said, “this regulation is not retroactive and parent bank is not required to provide enough capital for branches according to worries of BWG. This is in line with the advice of international organisations as well as international norm. However, we will also continue to study further”.

Tien added this regulation is necessary because it is in accordance with the policies of dealing with foreign banks’ branches in Vietnam’s WTO accession and at the same time it ensures for the fairness with domestic banks.

TBKTVN

Tags: Vietnam finance, Vietnam financial, Vietnam foreign bansk

Posted by VBN on Jun 1 2010. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry