Experts take stock of new government banking draft

The SBV aims to limit the number of new banks during the next few years

The draft, compiled by the State Bank of Vietnam (SBV), will be lodged for comment from local experts this week and aims to further strengthen the existing banking system, which is expected to follow the trend of bank mergers and acquisitions in Asia-Pacific, instead of new entities being established.
Director of the draft’s compiler – the Banking and Non-credit Institutions Department – Kieu Huu Dung said the requirements are the official and latest legal terms for establishing a new bank to ease the concerns of local corporations currently involved in a re-structuring process and seeking to expand their operations to banking services through establishing a new bank.
“Our aim is to limit the number of new banks and strengthen existing banks to help them survive in the international integration process,” said Dung.
A new bank must have VND1 trillion ($62.8 million) of chartered capital, and transparency in its stakeholders’ financial information and capability, as well as good governance and an effective banking system.
“For many corporations planning to establish their own banks, the chartered capital requirement was not a concern, rather it was their banking governance experience that presented a problem,” said Dung.
The draft regulates that the new bank must have a healthy governance banking system and clear plans to apply governance practices in banking operations, including applying Basel II standards from either 2008 or 2010. The international convergence of capital measurements and capital standards, a revised framework known as Basel II, regulates large stakeholder relationships cannot cause any risks for banking operations.
“It will be harder for a non-banking service corporation to apply Basel II, as it requires in-depth banking experience,” said Dung.
The draft said joint stock commercial banks will not be allowed to lend to affiliates of its large stakeholders and relatives because it will be vulnerable to the bank’s credit if the stakeholders run into financial difficulties.
For the time being, a corporate or family can hold up to 40 per cent stake of the joint-stock commercial banks. Electricity of Vietnam, for instance, holds a 40-per cent share of the An Binh Urban Joint Stock Commercial Bank while a family holds a similar stake ratio in the Southeast Asia Joint Stock Commercial Bank.
“We are considering proposing that the government reduce the permitted percentage a local corporation or family can hold in a joint stock bank,” said Dung.
Local corporations, including Vietnam Post and Telecommunications Group and Vietnam Insurance Corporation, are lobbying to set up banks. The country has 37 joint stock commercial banks, including 12 operating in rural areas.
Regarding foreign bankers, Vietnam will fulfill its commitments to the World Trade Organisation to allow foreign institutions to establish new banks in Vietnam from 2008.
The draft will be submitted to the government in the second quarter and if it was approved, the state will prevent local corporations from establishing a bank but turn their interest into buying shares in joint stock commercial banks in rural areas.



No. 756/April 10-16, 2006