New mechanism makes it impossible for banks to increase chartered capital

Bao Viet Bank and PG Bank still cannot increase their chartered capital to 3000 billion dong as stipulated in the Decree 141, because the two big shareholders of the banks, both are state owned enterprises, are not allowed to contribute more capital.

The obstacles from policies

The decree stipulates that by the end of 2010, the legal capital of banks must be raised to 3000 billion dong at minimum. However, the State Bank of Vietnam in late 2010, when considering the operation of banks, decided to delay the deadline by one year, to December 31, 2011.

Several banks still have not increased the chartered capital to the required level, though the deadline is nearing. These include Bao Viet Bank which has the chartered capital of 1500 billion dong, and PG Bank which has the current chartered capital of 2000 billion dong.

As for Bao Viet Bank, the big shareholders of the bank include Bao Viet finance group, Vinamilk, CMC Group and some others. Of these, Bao Viet is the biggest shareholder, who is holding 52 percent of chartered capital, or 780 billion dong.

If the bank increases its chartered capital to 3000 billion dong, Bao Viet will have to contribute 780 billion dong to the bank, if it wants to maintain the current ownership ratio.

Similarly, the Vietnam Petroleum Import-Export Corporation (Petrolimex) is the biggest shareholder of PG Bank which now has the chartered capital of 2000 billion dong. Petrolimex is holding 40 percent of capital, or 800 billion dong. If PG Bank increases its chartered capital to 3000 billion dong, Petrolimex has to contribute 400 billion dong more.

It seems that both of them have to go on a tough road to increase their chartered capital as required.

Phan Dao Vu, General Director of Bao Viet Bank, said that the problem of Bao Viet bank does not lie in the lack of money or the lack of potential investors, but in the current regulations on capital contribution, and that Bao Viet Bank is still awaiting the Prime Minister’s decision on the case.

Under the current regulations, state owned enterprises cannot contribute the capital which must not be 20 percent higher than the chartered capital of the capital contributor and must not be 30 percent higher than the legal entity that receives the capital contribution. If the contributed capital is higher than the stipulated level, involved parties must obtain the approval from the Prime Minister.

However, the regulations are expected to be tightened further. On September 23, the Ministry of Finance announced its intention to reduce the capital contribution proportion to 10 percent, believing that the move is necessary to ensure the safety of state owned enterprises’ operation.

If this comes true, both Bao Viet Bank and Petrolimex will not be able to contribute more capital to their banks, and will have to withdraw their capital from the banks.

What is the way out?

Vu said that the bank has reported the case to the Prime Minister and it is awaiting the final decision.

Meanwhile, other potential shareholders of Bao Viet Bank, though showing their interests in injecting more money in the bank, still have not made investment decisions, saying that they will not make decisions until they hear the final decision about the capital structure of Bao Viet Bank.

The same situation is occurring with PG Bank. Under the current regulations, Petrolimex is not allowed to contribute more capital.

Bui Ngoc Bao, Chair and General Director of Petrolimex, said that he himself does not know how the board of directors of the bank will settle the problem.

In principle, PG bank can issue 1000 billion dong worth of shares by the end of 2011 to mobilize more capital. However, it remains unclear about the feasibility of the plan; especially the stock market remains gloomy.

Source: TBKTVN

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial