Deadline for banks to raise capital pushed back a year

Transaction conducted at an Asia Commercial Bank branch in Ho Chi Minh City.

The proposal was sent to the government when it was found that commercial banks faced a looming December 31 deadline to meet stricter minimum capital requirements.

Earlier, the central bank had been adamant that if they failed to meet the deadline, banks would face closure, or be forced into mergers with other institutions. The bank said that the deadline was ‘hard-and-fast’ as the banks had had four years to prepare for the capital increase.

The government issued the Decree 141/206/NĐ dated on November 22, 2006, requiring banks to raise their chartered capital to at least VND3 trillion ($150 million) by December 31, 2010.
 
The decree was aimed at eliminating any weak banks and strengthening the financial capacity and security of the banking system. 
 
The banking system has quickly developed during the past years of renovation. However, most of banks are small-sized and may be vulnerable to the ups and downs of the market.
 
Additionally, objective reasons like the global financial crisis and economic downturn have prevented foreign partners from pouring money in the banking system and the Vietnamese banks themselves from raising capital through issuing shares.
 
Besides, the government has required the sate-owned enterprises to focus on their main business lines, so they have withdrawn money from banks, causing difficulties for the banks.

By the end of October, all 22 commercial banks not yet in compliance had received the central bank’s approval to increase registered capital from an average of nearly VND1.6 trillion ($80 million) to an average of VND3.5 trillion ($175 million).
 
Eleven of these banks had received the State Securities Commission approval to raise additional funds by offering shares. However, because of the gloomy state of the market during the last several months, these plans were derailed.

The State Bank previously extended deadlines for commercial banks to meet higher capital requirements. Commercial banks were required by law to registered capital of at least VND1 trillion ($50 million) by the end of 2008, but only 28 banks had met the requirement by the deadline. Another 10 managed to meet it only as late as the end of 2009, with the central bank granting permission for delaying the compliance.