Central bank sets strict rules for new banks

The State Bank of Vietnam (SBV) is set to slap stringent new conditions on the establishment of commercial joint stock banks following a decision issued on June 7.

Under the Decision No24/2007/QD-NHNN, new banks must have at least VND1 trillion (US$62.5 million) in chartered capital and be able to scale up the figure to VND3 trillion by early 2009.

In addition to a 100-founder proviso, the decision specifies that a new joint stock bank must have at least three member institutions, each with capital valued at a minimum of VND500 billion ($31 million) and each having been profitable for the last three years.

If the founding shareholder in the new venture is a commercial bank, the shareholder must have VND10 trillion ($625 million) in total assets, bad debt of below 2% of outstanding loans and must have been profitable over the last three years.

The decision also states that capital acquired to found a new bank must be owned by shareholders and not be loaned in any form whatsoever.

Each member institution can own a maximum stake of 20% of the bank’s chartered capital, and individual shareholders can hold only 10% at maximum.

A shareholder’s ownership can be raised with the approval of the SBV’s governor.

The founding shareholders must hold a total of 50% of the chartered capital, and are allowed to sell their stakes to others within the founder board five years after the bank’s launch.
Other shareholders are eligible to transfer their stakes in a bank three years after its founding.

The decision also states that foreigners are not allowed to act as founding shareholders in the new banks. They can, however, acquire bank shares after operations have begun.
Apart from the capital requirements, the new decision has set criteria detailing human resources, information technology and business strategy.

The plan for a new bank establishment must apply IT standards to the bank’s operation and the appointment of key management positions.

New bank must define the volume of expected business in years to come, basing estimates on current capital figures.

A SBV official said that about 24 proposals to set up new banks had been submitted to the bank, but none of them have been considered yet.

Kieu Hung Dung, head of SBV’s Banks and Non-bank Credit Institutions Department said the bank would take six months to examine each file.

However banking analysts commented that it was not easy to set up a new commercial bank due to the central bank’s tight rules on capital requirements.

SBV has recently issued a circular guiding the establishment of wholly-foreign owned banks and joint venture banks following the country’s WTO commitment to open up banking sector to all players.

Under its commitment to the WTO, Vietnam began permitting wholly foreign-owned banks on a par with domestic banks in April.

It has so far received at least ten applications for the establishment of foreign-owned banks from foreign financial institutions.

Source: Thanh Nien