Banks scramble to open branches as SBV tightens expansion regulations

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Many banks have applied to open new branches just before a new regulation with stringent conditions, aimed at ensuring fairer competition, takes effect.

The central bank last week gave the green light for DongA Bank to open five branches in the provinces of Dong Thap, Gia Lai, Hau Giang, Dac Nong, and Kon Tum.

PVcomBank and SHB are set to open four branches each, while others like BIDV and LienVietPostBank have also been allowed to expand.

These came even as a circular tripling the minimum chartered capital required to open a branch in Hanoi and Ho Chi Minh City to VND300 billion (US$14.3 million) took effect on October 23.

It also limits the total number of new branches in inner Hanoi and HCMC to 10 a year.

A bank can open no more than five branches anywhere in the country in a fiscal year, and three if it has been operational for less than 12 months. Besides they can open only one in any city or province.

Only banks that made profits the previous year and had bad debts of no more than 3 percent - or the rate stipulated by the State Bank of Vietnam - will be allowed to open new branches.

Explaining the sudden expansion binge, the head of a Hanoi-based bank said the new regulations would make it harder for banks, especially small ones, to expand.

Meanwhile, many banks have increased their chartered capital and so want to open more branches to attract more deposits.

Some still have low liquidity and want to increase deposits to improve their situation, the banker added.

Cao Sy Kiem, a former governor of the central bank, warned that the increasing competition would exacerbate the risk of bad debts.

"In other countries, expansion of bank branches is carefully considered."

Echoing Kiem, economist Nguyen Dai Lai said Vietnam has too many banks. This could cause chaos and have an adverse effect on monetary policy.

There are now 40 domestic banks and many foreign and joint venture banks besides a host of other credit institutions, according to the central bank website.

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