Local banks hit hurdles raising chartered capital

Leap of faith: banks need capital to compete with foreign firms preparing to enter Vietnam

Kieu Huu Dung, director general of SBV Banks and Non-bank Credit Institutions Department, said the pressure from competition as the country prepares to enter the WTO, is bearing down on state-owned commercial banks, which have to increase equity by the year 2010.
The State Bank of Vietnam estimated that each state-owned commercial bank [SOCBs] needs around VND1 trillion ($62.8 million) to increase equity in 2010. Accordingly, the central bank has written a draft plan forcing SOCBs to increase their capital over the next five years by an initial VND200 billion ($12.5 million), then VND500bn ($31.4m) and a final VND1tn ($62.8m).
“This requirement is very tough, but it is urgent to local SOCBs,” said Huu Dung.
Vu Viet Ngoan, director general of the Bank for Foreign Trade of Vietnam (VCB) said Vietnam aims to have a bank of the regional medium-size with a total asset value of around $50-70bn. While his bank has only $8bn of total asset value.
With an annual revenue growth of 15 per cent, VCB might have around $30-32bn of total asset value by 2015, “therefore, we need greater support from the central bank and the government to become a multi-function financial corporation,” said Ngoan.
Meanwhile, Pham Phan Dung, director general of Banking and Financial Department under the Ministry of Finance, said his ministry was still mulling over measures to mobilise capital for increasing chartered capital for these banks. “The task of capital mobilisation for socio-economic development of the whole country is very challenging and requires local banks to share the burden,” Dung said.
The plan for the mobilisation of medium and long-term capital for development this year is very ambitious, as the country needs to mobilise around VND40tn ($2.5bn) through issuing government bonds.
“Through re-structuring SOCBs, Vietnam will have strong financial and banking corporations,” said Dung.
Dung from the Ministry of Finance gave the Bank for Investment and Development of Vietnam (BIDV) as an example of a local bank that cooperates with foreign partners to establish four investment funds to mobilise long-term capital.
Tran Bac Ha, BIDV director general, said the bank will not issue convertible bonds for increasing legal capital before delivering shares to the market by 2007. Convertible bond issuing was a method the Bank for Foreign Trade of Vietnam used to increase its equity last year.
The central bank said that the state provided an additional capital of VND12.5 trillion ($788.4m) of chartered capital for five SOCBs, raising their total equity to VND18.4tn ($1.1bn) by the end of 2004, tripling that of 2000.
The state has also mobilised money for increasing capital via government bonds, public debts and profits from other industries in Vietnam.


No. 749/February 20-26, 2006