Big banks short changed

The State Bank of Vietnam is expected to release a circular this week guiding the implementation of Decree No.22/2006/ND-CP on orga-nisation and operations of foreign banks, joint ventures, 100 per cent foreign-owned banks and foreign financial institution representative offices in Vietnam.
Accordingly, the toughest condition for establishing a locally-incorporated bank in Vietnam is the availability of an agreement on information exchange, and cooperation in supervision and inspection between the State Bank of Vietnam and the home authority of the applicant.
To date, Vietnam’s central bank has only signed such an agreement with its counterparts in South Korea, Russia and Taiwan.
“We have plans to sign similar agreements with partners in Australia, Singapore, mainland China and Hong Kong this year. An agreement with a US agency is available, but not complete. We do not have any plans to sign with a UK agency as yet,” said a State Bank source.
The circular is to come on the heels of the country’s WTO commitments, which allow the establishment of 100 per cent foreign-owned banks in Vietnam from April 1, 2007.
“We are preparing final details of the draft for approval this week,” said Kieu Huu Dung, director of the Banks and Non-bank Credit Institutions Department under the State Bank.
The draft stipulates that, in general, 100 per cent foreign-owned bank subsidiaries may be established within the next five months if the applicant submits a complete dossier.
Within 90 days the State Bank will determine whether to grant a licence with full information and agreements from other state agencies, including the Ministry of Public Security, the People’s Committee Authority and the State Bank branch at the place where the new bank will be headquartered.
The dossier must include a business proposal for the first three years of operation, the annual audited financial reports of the parent bank in the latest three years, human resource proposals, structure and proposed safe ratios for the first three years.
The parent bank must also have either a document or evidence of approval from the central banking authority in the home country confirming sufficient capital for establishment of 100 per cent, foreign-owned bank.
The parent bank must also satisfy financial criteria, such as capital ratio of 8 per cent, non-performing loans at less than 3 per cent of total outstanding loans and total assets of $10 billion for one year ahead of submitting the dossier. The bank also must have earned profits for three consecutive years and must keep more than 50 per cent chartered capital in its local incorporated subsidy.
Shareholders of foreign-owned banks in Vietnam are not allowed to transfer their shares for the first five years and transfers after that must be accepted by the central bank.