SMBC muscles up its local market stance

Masaya Hirayama

What were the reasons behind the hikes in charter capital for these branches?

Under the amended Law on Credit Institutions, effective from January 1, 2011, the State Bank changed the bank lending limit to a single customer and a group of customers. We used to be allowed to lend to single customer up to 15 per cent of our parent bank’s capital and this amount was 25 per cent for a group of customers. The limits now become 15 and 25 per cent of branch capital, respectively. This is quite a big change for foreign bank branches because, in our bank’s case, our capital was only $15 million, which was 0.07 per cent of our parent bank’s capital.

We increased our branch capital to comply with the new law. After this new regulation came into force, capital increase was indispensable for us to maintain our current banking services in Vietnam and to meet increasing fund raising demand from customers. Many customers were afraid they might not be able to receive our continued credit support under the new regulation. So we hope these capital increases would make our customers feel comfortable about SMBC’s lending capability. We are now fully ready to serve them.

At this moment, we are the biggest foreign bank branches, but sooner or later we will be just among many as we assume that other foreign bank branches will follow suit. We are not doing something special, we are just trying to comply with regulations.

Why is there a large gap between the charter capital of your northern and southern branches?

This is because our northern branch is focused on project financing, while our southern branch mostly serves Japanese companies. Most project owners are state-owned companies or the government and those deals should be negotiated in Hanoi.

Japanese corporate customers’ requirements for capital may not be as large as the size of loans for infrastructure projects this time.

Funding an oil refinery project could be one of the reasons - but not the only reason - for the capital increase. We are making loans to major infrastructure-related projects in Vietnam, each of them requires a huge amount. Being either a leading arranger or just a participant in financing a project, we are asked to lend around $50 million for each project. So if we lend that $50 million, the minimum capital required will be $335 million. That is why we increased our capital to that level.

How are SMBC’s operations in Vietnam this year in the context of a high inflation and a troublesome monetary policy?

I suspect this year will be difficult for the Vietnamese economy. Currently, the State Bank and the government are jointly making great efforts to control the economy. Meanwhile, I think one of causes of this difficulty is that infrastructure is insufficient to sustain high economic growth. Therefore, in order to cope with the economic difficulties in the long run, we should support this country’s infrastructure projects since we believe in the future of this country. That’s why we would like to increase our finance activities in Vietnam despite the developing issues in its economy.

When it comes to a comparison with local banks, one of our strengths is sound overseas US dollar funding sources. We are going to use our US dollar funds effectively for the priority projects.

For this year, I assume that the government might have to make significant efforts to bring about economic stability rather than growth. Together with the State Bank, banks are trying to limit lending to real estate businesses, securities businesses and to non-prioritised sectors.

But I believe this won’t affect our banking business much because we at SMBC are focusing only on lending to infrastructure projects or manufacturers.