Banks make their moves

Foreign bank branches have been offered a window to offer loans exceeding the limit

The State Bank governor Nguyen Van Giau last week issued documents No.9915, 9916, 9920, 9921/NHNN-TTGSNH to allow four foreign bank branches to increase their chartered capital.

Accordingly, the Ho Chi Minh City branches of the Huanan Commercial Bank Ltd. and Chinatrust Commercial Bank are permitted to raise chartered capital from $15 million to $65 million and $50 million, respectively.

The Ho Chi Minh City and Hanoi branches of the Mizuho Corporate Bank Ltd. are also allowed to lift their charter capital from $15 million to $133.5 million.

Nguyen Thi Kim Thanh, head of the central bank’s Banking Development Institute, said the rationale behind the increases might be the restrictions taking effect from 2011 on foreign bank branches.

As per Article 128 of the new Law on Credit Institutions, the total credit balance provided to a customer shall not exceed 15 per cent of the locally-owned equity of a locally incorporated bank or a foreign bank branch that provides the loan.

The State Bank, however, has opened a narrow escape window for foreign entities. At the Vietnam Business Forum in early December, 2010, central bank vice governor Nguyen Dong Tien said that a foreign bank branch might apply for written approval from the prime minister to provide loans exceeding the limit.

Tien said lending calculations were based on each bank or each branch’s capital, rejecting the group’s recommendation on allowing foreign banks with more than one branch in Vietnam to calculate the lending limit on a consolidated basis of all the branches’ capital.

Brett Krause, chairman of the forum’s Banking Working Group, said that calculating the lending limit based on the branch’s capital instead of the parent bank’s capital was a significant change to foreign entities in Vietnam.

It should be noted that the Banking Working Group has asked the authority several times for a change to Article 128. Currently, foreign bank branches play a crucial role in providing onshore financing for foreign direct investors, infrastructure projects and many of the local industries in Vietnam.