Commercial banks given relaxing breath

Many smaller banks had been feeling the heat as the charter capital deadline neared

The decision was made on the State Bank’s request and will give a relaxing breath to 19 local joint stock commercial banks which are obviously behind the initially set schedule.

The new move also gives eight foreign invested banks, including four joint ventures and four wholly incorporated banks, the extra time to fulfill their capital raising obligations.

Under the governmental Decree 141 dated November 22, 2006, a commercial bank operating in Vietnam must have at least VND3 trillion ($157.8 million) in chartered capital by 2010’s end.

In May this year, the central bank reiterated the rule, stating that commercial banks with chartered capital below the stipulated level had to submit capital raising dossiers by July 1. Otherwise, the central bank would not approve their network expansions. Those failing to obtain the capital raising approval must propose the central bank for being merged or closed before October 1, 2010.  

With the enforcement of Decree 141, around VND30 trillion ($1.5 billion) would have to be raised by 20 Vietnamese joint stock commercial banks having chartered capital of less than VND3 trillion.

Meanwhile, some $757 million would also have to be mobilised by the eight foreign  invested banks to satisfy the capital raising requirement.

Banking observers have said such a huge mobilisation would be a hard nut for banks to crack given the difficulties facing capital raising channels, including the ailing stock market.

Specifically, the 19 joint stock commercial banks have failed to complete the necessary procedures for listing on the stock market and find potential partners.

Le Tham Duong, head of Ho Chi Minh City Banking University’s Business Management Faculty, said the deadline extension by the government would give banks a second chance.

Furthermore, he said that in the context of high inflation and weak stock market performance, the concession would also “help avoid a large amount of stocks being listed on the stock market while demand is limited”.

“However, the concession will create a precedent for banks to not strictly follow the government’s policies,” he noted.