New capital requirements strain banks in Vietnam

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A new regulation requiring lenders to maintain higher capital adequacy ratios by October 1 has put a strain on banks, an industry group said. 

The Vietnam Bank Association said many commercial banks will not be able to increase their minimum capital adequacy ratios from 8 to 9 percent as ordered by the central bank.

According to the association, banks need more time to raise capital in order to meet the new ratio requirement.

The October 1 deadline was announced by the State Bank of Vietnam at the end of May in an attempt to ensure the financial security of the nation's institutions. The higher the capital adequacy ratio of a lender, the better equipped it is in dealing with risk. 

Some commercial banks complained that their major shareholders planned to divest, making it even more difficult to raise capital this year. 

The State Bank of Vietnam also introduced a regulation requiring banks to lend no more than 80 percent of their total deposits. Duong Thu Huong, general secretary of the Vietnam Bank Association, said the ratio is reasonable and lenders should follow the rule.

The problem is, she said, the regulation excludes demand savings by institutional investors when calculating the total deposit at a bank. Demand savings, which can be withdrawn at any time, often account for 15 percent of total deposits.

This means banks will have to attract more term deposits, which can only be withdrawn at certain times, she said.

The Bank Association has asked the central bank governor to review the new requirements and give banks more time to meet them, Huong said.

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