Rural banks on the way out

The new rules on restructuring the nation’s rural commercial joint-stock banks will force all seven rural banks to either merge with other banks or become urban banks.
The country will then have 36 urban commercial joint-stock banks.
Kieu Huu Dung, director of the central bank’s Banks and Non-bank Credit Institutions Department, said all rural joint-stock banks had submitted their proposals for conversion to urban banks to the central bank and none would lose their licence.
The converted banks will operate nationwide, rather than being limited to small markets as previously.
The reason behind the new restructuring rules is the narrow operational scope and low capital of the banks operating mostly in rural areas. The restructure will increase their competitiveness, improving their ability to survive in the new context of fierce competition.
At present, seven rural commercial joint-stock banks are operating, mostly in Mekong Delta provinces including An Giang, Can Tho, Long An and Kien Giang. The smallest of the banks has chartered capital of just VND5 billion ($314,000).
Meanwhile, the State Bank of Vietnam has finalised the roadmap for increasing the chartered capital of each bank, which must reach VND1 trillion ($62.8 million) by 2010.
The proposal aims to establish large-scale banks that are able to compete in the context of international integration and to increase the competitiveness of local banks.
The proposal will unify the commercial joint-stock bank model in Vietnam, creating a level playing field for local banks and preventing the segmentation of the domestic market through decreasing the number of small banks.
The central bank has also compiled a decree on the organisation, governance and operation of commercial banks, raising the minimum chartered capital of newly established commercial banks in Vietnam to VND5trn ($314.4m) in order to limit the number of banks operating.
“The number of banks will be reduced gradually to an expected 15 by 2015, however, there have not yet been any plans for mergers of domestic banks submitted to the State Bank of Vietnam,” Dung said.
He said the new requirement on chartered capital aimed to define the level of market access for foreign banks ready seeking access to Vietnam.
Commercial joint stock banks held 13.2 per cent of the deposit market in Vietnam and 11.6 per cent of the lending market in 2004.



No. 775/August 21-27, 2006