No chance for establishing new banks because of stricter terms
07-OCT-2008 Intellasia | Nguoi Lao Dong
Oct 7, 2008 - 7:00:00 AM
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State Bank of Vietnam is finalising a new decree draft to replace Decree No 49 on terms of establishing and managing banks based on the standards of World Trade Organisation and Organisation of Economic Cooperation and Development (OECD). The decree is regarded as a reform in banking operation, which will not only help upgrade the quality of banking activities but also end the bank setting-up race that has taken place during the past two-years causing instabilities in the system.
Dr Le Xuan Nghia, head of SBV's Banking Strategy Department said, according to the decree draft, the terms to set up new banks in Vietnam will include the initial chartered capital of three trillion dong. Promoters of new banks must have an ownership capital of at least three trillion dong and ensure the profitable business in three consecutive years. In his opinion, the terms are very strict because under current regulations, Vietnamese banks must reach the chartered capital of one trillion dong by the year-end.
Particularly, the required capital of founding shareholders pursuant to the decree draft is as high as the current chartered capital of small sized banks. While state economies and corporations were limited to join finance and banking sector, private enterprises nearly cannot set up a new bank with such a high-chartered capital. The draft basically deals with the systematic supervision frame of commercial banks and interests of small shareholders, which helps to confirm the supervision position of director board. Director board of banks will have the responsibility to consider and approve list of nine reports along with discussing credit, profit sharing and shareholders' meetings.
Vietnam now has over 50 banks capitalised from 500 billion dong to several trillions of dong, of which more than 30 are commercial joint stock banks. Many economists said that the capital scope is equal to that of too small sized banks of US. In addition, the number of 50 banks is too high as for an economy with GDP of about US$70 billion a year like Vietnam. According to Nghia, the importance of banking operation is quality but not capital scope or quantity. He cited, as for US, there are thousands of banks with chartered capital of only US$20 million. The banks that had to suffer damages or file for bankruptcy from the US financial upheaval are giants namely Lehman Brothers, Morgan Stanley, not small banks. The technical barrier in the decree draft is matched with WTO's commitments but this will cause difficulties for Vietnamese businesses that want to set up new banks. As for well-known names, these terms of establishing new banks are not too difficult. It is forecasted that in the next ten-years, the presence of big foreign banks in Vietnam will create a severely fierce competition in the finance market here.
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