Banks sweating on network expansion

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A bank branch must have charter capital of at least VND200 billion ($9.7 million) to open in Hanoi or Ho Chi Minh City and at least VND50 billion to be established in other provinces or foreign countries, according a State Bank draft circular on setting up bank branches.

The existing charter capital requirement for a bank branch in Hanoi or Ho Chi Minh City is at least  VND100 billion.

Trinh Van Tuan, general director of Orient Commercial bank (OCB), said there were too many bank branches in Hanoi and Ho Chi Minh City. Thus, the aim of the draft was to limit widespread branch openings.

“With this limitation, commercial banks with around VND3 trillion ($145 million) in charter capital can open only about 15 branches in Hanoi and Ho Chi Minh City,” he said.

A Vietnamese financial analyst who used to work  for Nomura Holdings said this limitation was unnecessary as the widespread use of internet banking meant customers could access online services easily.

“To monitor the banking system’s safety, we can look at daily liquidity reports, credit risk reports or consolidated reports for the whole system and many other safety criteria. Such  limitation can reduce the number of branches, but cannot reduce risks associated with a branch. If a branch is not well managed, it can be as risky as a bank which has 100 operating branches,” said the analyst, who declined to be named.

Techcombank executive vice president Dang Tuyet Dung, however, argued that this limitation might not affect the bank network as each bank had its own strategy.

“Not all banks choose opening branches as a priority strategy. One may choose to open more branches to take geographical advantage. Others focus on improving services depending on each customer segment and targeted business area. The most important thing is to look at the development strategy of the whole baking system to find the most appropriate solution,” she said.

Independent financial expert Bui Kien Thanh noted that the expansion of the banking network did not depend on the number of bank branches. “It requires good capital and good human resource management. Even the charter capital is raised as the central bank required, the banking system still faces instability if banks do not have professional development strategies.”

Thanh cited Eximbank as an example. In 2010, Eximbank had only 39 branches but its mobilisation capital hit as high as  VND70 trillion ($3.4 billion) and its targeted capital from mobilisation this year is VND110 trillion ($5.3 billion), a 56 per cent increase against 2010.

Deputy general director of another domestic commercial bank said banks did not want to open too many branches as the expense of operating and managing branches was high. “Required increases in charter capital forced banks to speed up mobilisation. That’s the main reason for widespread branch opening,” he said.