Raising chartered capital is key to sharpen competitiveness

How will the State Bank’s recent decision to extend commercial banks’ chartered capital expansion deadline impact on banks’ performances?

Vietnam’s stock market fared poorly in 2010. However, we still saw many companies making initial public offerings (IPO) and issuing more shares to raise their chartered capital, so why bank cannot do the same.

However, if the chartered capital raising deadline was not extended, nearly half of the banks could not satisfy the requirement of having at least VND3 trillion ($150 million) in chartered capital by the end of 2010. Thereby, relaxing the obligation was carefully considered by banking authorities.

Besides, also in 2010 the Vietnamese government asked state-owned corporations and groups to partly withdraw or not to inject more capital into banks.

For their part, a handful of banks have rushed into finding strategic partners, both domestic and foreign, to be able to meet chartered capital raising obligations on time. However, the task is a challenge itself when the economy has still struggled with numerous difficulties.

How will the decision impact on the economy as a whole?

Extending the [chartered capital raising] deadline by one more year will give banks more chance to satisfy the government’s requirement and support the ailing stock market. However, the concession will create a precedent for banks not to strictly observe the government’s policies.

Besides, banking authorities had worked on a roadmap under which commercial joint stock banks would be required to have at least VDND5 trillion ($250 million) in chartered capital by 2012. The proposal is now almost impossible with State Bank’s recent deadline extension.

Is it necessary to raise banks’ chartered capital on schedule in your view?

Raising banks’ chartered capital is important when Vietnam’s economy is getting closer to the world economy. Reality shows that the financial and banking market features increasingly stiff competition in the recent years and the domestic market witnessed the growing presence of foreign banks. Thereby, local banks could fail unless they make efforts to enrich their capital sources.

What should smaller banks do to enhance their competitiveness?

First and foremost, they need to gradually ameliorate their financial capacity. In fact, some commercial banks were of smaller size several years ago. However, they have grown into powerful entities after striving to enhance their financial capacity.

I think to address current shortcomings, small banks must reshuffle their capital and operational structures and inject more capital into equipment, human resources and IT to keep up with chartered capital raising requirements.