SBV calls for regulation of foreign bank affiliates

The SBV decree is set to pave the way for Vietnam to open up its banking sector

The draft decree compiled by the State Bank of Vietnam (SBV) will focus on regulating the organisation and operation of foreign-bank branches, joint-venture banks, 100 per cent foreign-owned banks and representative offices of foreign credit institutions in Vietnam.
The 100 per cent foreign-invested bank is mentioned on the amended Law on Credit Institutions but has yet to be guided by the existing decree No 13 issued in 1999 on the organisation and operation of foreign credit institutions and foreign credit institution representative offices in Vietnam.
Le Duc Thuy, SBV governor, said the document aims to pave the way for Vietnam to realise its commitment to open the banking sector to the World Trade Organisation (WTO).
“According to the Vietnam-US bilateral trade agreement, Vietnam will allow foreign banks to set up their affiliates in Vietnam in 2009,” said Thuy.
According to the decree draft, the parent bank of the 100 per cent foreign-invested affiliate will have to secure over 50 per cent of chartered capital and commit to supporting the affiliate’s operations in Vietnam. The affiliate will be either a limited company or legal entity operating under license.
At present the 100 per cent foreign-owned banks have two forms of foreign investors ownership with a more or less than 50 per cent stake of the parent banks in its affiliate’s chartered capital.
Currently foreign banks are lifting limitations on setting up branch networks and dong mobilisation under the BTA and commitment of Vietnam to the WTO which will be lifted by 2010. The operations of the affiliate and joint-venture banks will suffer no limitation on setting up branch networks and dong mobilisation operations.
The SBV, however, will take some qualitative measures to selecting prestigious and large banks to open an affiliate organisation in Vietnam before issuing licenses.
However, with the new regulations on affiliates, it is not expected that many affiliates will be opening in the future.
Jenny Gordon, director of the Centre for International Economics of Australia, said foreign banks will look for partnership with joint-stock or state-owned commercial banks as the market is quite vulnerable to foreign banks.
“It is long and hard entry, while there are already a lot of foreign banks in Vietnam, and if joint-stock and state-owned commercial banks can improve the quality of services then foreign banks will find it very hard to make a good profit,” said Gordon.