Foreign banks beef up capital, threatening locals

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A recent hike in foreign-owned bank capital has been perceived by several local lenders as a sign of tough competition ahead.

In December, the State Bank of Vietnam allowed four foreign-owned bank branches to raise their registered capital to between US$50 million and $133.5 million each.

Prior to the development, the branches, which belonged to the Huanan Commercial Bank Ltd., the Chinatrust Commercial Bank and Mizuho Corporate Bank Ltd, held just $15 million.

Le Xuan Nghia, vice chairman of the National Financial Supervisory Commission, said these branches raised their capital in order to comply with a recent amendment to banking regulations.

Foreign bank branches in Vietnam were only required to demonstrate a registered capital of $15 million so long as their parent companies were able to cover their loans.

New regulations require local branches to raise their own capital here if they want to issue loans of more than $2 million per client, Nghia said.

Concerns have arisen among local banks that the capital hike stemmed from more than a desire to comply with new regulations.

Pham Quyet Thang, general director of Hanoi-based GP Bank, worried that the risk of local banks losing their market share is looming larger.

"Foreign banks are now targeting clients who need small loans," he said. "To prepare for competition, they have raised their capital to a much higher level than required."

Thang said that many foreign banks have also appointed local employees to key positions and are gradually replacing foreign staff members.

He feared that this "localization" process, as he called it, would remove the advantage of market understanding enjoyed by local banks.

Many small banks in Vietnam were supposed to raise their registered capital to at least VND3 trillion ($154 million) by the end of last December.

In a last-minute twist, however, the central bank decided to push its deadline back a year. In Vietnam, registered capital determines how much a bank can lend out and take in as deposits.

Thang said this delay may hurt small banks.

"There is a chance that the State Bank of Vietnam will not allow banks that haven't raised capital to proceed with their plans to expand operations and launch new products," he said. "This could make the situation even more difficult for them."

Last month, his bank raised its registered capital from VND2 trillion to slightly more than VND3 trillion.

Nghia of the National Financial Supervisory Commission said the coming competition should not be viewed merely as a matter of local versus foreign banks.

"The competition now is among all players in the banking sector," he said.

Foreign banks still enjoy a certain competitive edge, Nghia added, especially in terms of lending to foreign enterprises and credit card services. Meanwhile, it will not be easy to compete with local banks in attracting deposits; they have more flexible policies and wider networks.

There are five wholly foreign-owned banks, 48 branch offices and 48 representative offices operating in Vietnam. Vietnam has 42 commercial banks of its own.

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