Foreign lenders rush to raise registered capital

A foreigner waits outside an ATM booth in Ho Chi Minh City

Prime Minister Nguyen Tan Dung approved the proposal requiring local lenders to raise registered capital levels to VND3 trillion ($150 million), by December 31, 2011, the State Bank of Vietnam said on its website last week.

Commercial lenders took a breath of relief on the fact that the central bank extending the deadline to raise registered capital by one year to ease pressure on banks having difficulty meeting higher requirements.

Foreign-owned banks, meanwhile, are in a race to either reduce the outstanding credit or add more capital in an attempt to meet the new requirement, experts said.

According to the Law on Credit Institution, foreign banks are not allowed to offer a loan which is worth 15 per cent higher than its registered capital.

A Vietnam branch of a foreign bank said in spite of its registered capital of $15 million only, it could support projects worth $50 million thanks to the mother bank’s large capital.

But according to the requirement of raising registered capital levels, they can loan around $1-2 million only.

The State Bank of Vietnam early this week granted permissions to three foreign lenders to raise their capital.

Among those banks are Taiwan-based Hua Nan Commercial Bank increasing its registered capital to $65 million from $15 million, Taiwan-based Chinatrust Commerical Bank raising to $50 million from $15 million and Japan’s Mizuho Corporate Bank to $133.5 million from $15 million.

An official of Korea Exchange Bank said the bank will surely have to raise capital as 60 per cent of its clients borrowed more than $4 million for each. 

Financial experts said foreign lenders with high foreign currency liquidity have an edge over local banks. Therefore, asking them to raise capital will prompt to a shortage of foreign currency, the expert warned.

“Borrowers struggling to get foreign currency loans from foreign banks will switch to local lenders, pilling up pressures on the country’s foreign currency supply,” an economist said.

“The National Financial Supervisory Commission proposed the government to set up credit limits for foreign banks, instead of their branches in Vietnam,” said Dr. Le Xuan Nghia, vice chairman of the commission.

Statistics show Vietnam has 71 foreign credit institutions with 48 representative offices. Their total asset this year reaches more than VND420 trillion ($21 billion), increasing 30.8 per cent year-on-year and making out of 11.25 per cent of the banking system’s total asset.

They mobilised nearly VND364 trillion ($18.2 billion), a year-on-year increase of 33.8 per cent, and loaned more than VND230 trillion ($11.5 million) in the first ten months of the year.