The State Bank of Vietnam (SBV) will lift the required minimum chartered capital to newly established commercial banks in Vietnam from next year to VND5 trillion to boost competitiveness and stablise the local banking system.
The new regulation was raised in the government draft decree on the organisation, governance and operations of commercial banks, which is expected to be passed later this year, and will replace the outdated decree No.49 issued in 2000.
The central bank will increase the previously tentative level of VND1tn ($62.5 million) due to the country’s accelerating economic integration. This requirement may affect the establishment of 100-per cent foreign-invested banks as the decree is regarded as the nation treatment.
The draft initially targets state-owned and joint stock commercial banks. It will be lodged for comment, aiming to further strengthen governance in the existing banking system, which is expected to follow the trend of bank mergers and acquisitions in Asia-Pacific instead of new entities being established.
The fifth draft version regulates that specific chartered capital will be required in each period but at no time be lower than VND5tn ($314.4m). The government will have the right to establish state-owned commercial banks, while joint-stock commercial banks will clarify the capital resources of each individual and organisation that invest in the bank.
Director of the draft’s compiler, the Banking and Non Credit Institutions Department, Kieu Huu Dung said the requirements are the official and latest legal terms for establishing a new bank, and are aimed at easing the concerns of local corporations currently involved in the re-structuring process to expand their operations through establishing new banks as well as foreign banks to open business in Vietnam. He said the number of local banks has been reduced to 15 through mergers and acquisitions.
“The new requirement on chartered capital aims to define the level of market access for foreign banks ready to come to Vietnam with thorough plans,” said Dung.
A commercial bank will be not allowed to establish a joint-venture affiliate to operate in the real estate sector, while it will have to contribute or acquire more than 50 per cent of a company to participate in the banking, financial and insurance sectors.
Most representatives from local banks, including Vietcombank and Techcombank, agreed to the new capital requirement, saying it is reasonable. Nguyen Duc Vinh, general director of Techcombank, said the new requirement on chartered capital is needed in Vietnam to prevent chaos, which occurred recently in the local banking system.
“I support the regulation and I see the urgent need to replace the outdated decree to strengthen the governance of banking operations,” said Vinh. “Vietnam should keep the banking system stable and limit the number of newly established banks,” said an official from Vietcombank.
“The decree must include joint-venture and 100 per cent foreign-invested banks, as they are members of Vietnam’s banking system, and the requirements for governance are common for every entity,” said an official from the Banking Finance Department under the central bank.
The draft also raises the criteria for a bank general director, who must have a university degree in either finance, accounting or auditing, and have three years’ experience in financial management.
The draft prevents a family managing a commercial bank by not allowing those who have relatives to hold shares equivalent to over 10 per cent of the bank chartered capital.
It also restricts those holding high position on the management board or their relatives from being granted soft loans from banks without collateral. Relatives of a bank’s leaders are also not allowed to participate into key boards of the bank, including supervision, remuneration, and holding the position of chief accountant in the same bank.
No. 767/June 26-July 2, 2006