Listed banks may face bad-debt limits

November 04, 2010 | 09:26

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Credit institutions with bad debts of more than three per cent will not be allowed to list on the stock exchanges, according to a draft circular of the State Bank of Vietnam (SBV).

The circular covers joint stock commercial banks, joint stock financial ventures and joint stock leasing companies.

The draft sets out criteria credit institutions must meet to list, such as sufficient capital adequacy ratios (CARs) over the past three months.

Bad debts must be less than three per cent of their total outstanding loans if they wish to list inside or outside the country.

Credit institutions will not be allowed to list if they have been fined more than VND5 million ($250) for violating SBV regulations regarding CAR in the past year.

Furthermore, banks and credit institutions that want to post on foreign bourses must have already listed for at least one year on the domestic stock exchanges and must not have violated any securities regulations in the past year.

The SBV said the operations of credit institutions were very different from other types of business. It said banks' activities were considered extremely sensitive because part of their capital was made up of idle public cash.

When they list, credit institutions are required to declare information that may adversely affect their operations.

In addition, when listing on the securities market, the sale and purchase of the credit institutions' shares must be conducted according to the market mechanism, which could adversely affect the banks' existing shareholders.

Because banks are exposed to market forces, listing can be a precarious venture for banks, the SBV said.

The new draft will help SBV review credit institutions more thoroughly before they list to limit the risks involved for the credit institution and whole financial system, the SBV said.

VNS

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