Vietnam banks fret over restrictions

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The central bank is planning to double the minimum capital requirement for bank branches, but small lenders say the new rule would badly hurt their business.

According to a draft circular sent out to commercial banks last week, local lenders must have a registered capital of VND200 billion (US$9.7 million) for each new branch in either Ho Chi Minh City or Hanoi. The current minimum is VND100 billion.

For branches in other cities and provinces, the requirement remains unchanged at VND50 billion per branch.

Trinh Van Tuan, general director of partly private lender OCB, said there have been comments that the banking sector in Hanoi and HCMC is already too crowded and the State Bank of Vietnam wants to slow its expansion.

Although the move to restrict the establishment of bank branches is appropriate, the minimum capital requirement of VND200 billion per branch is too high, Tuan told the Dau Tu Chung Khoan (Securities Investment) newspaper.

It means commercial lenders with a registered capital of some VND3 trillion can only set up a maximum of 15 branches in the two cities, he said. "If there has to be a capital requirement, the current level of VND100 billion is more reasonable."

His bank, also known as Phuong Dong Commercial Bank, is a small lender in terms of assets. Its total assets at the end of May rose 13.7 percent from last December to VND22.38 trillion ($1.08 billion) while its registered capital was recorded at only VND2.73 trillion ($132.7 million), according to Reuters.

A senior manager at another commercial bank said most of the time, banks try to refrain from expanding their networks aggressively, simply because it would cost a lot of money to open a new branch and keep it running.

However, small banks have to increase their liquidity by attracting more deposits, and one way to do this is to open new branches, he said. "The central bank should let banks decide on a business expansion strategy based on its effectiveness and allow banks of different sizes to form different market segments."

Other banking experts also believe it's not necessary to tell banks how much money they should have before expanding. The managers of each bank will know what it takes to open a new branch, they said.

An unnamed expert told Dau Tu Chung Khoan that even though the banking market needs to have certain requirements and restrictions, these have to be determined based on scientific and practical criteria. Even in the same city different bank branches do not have to be of the same size.

"At some point the capital requirement will need to be eliminated," the expert added.

All Vietnamese banks have been required to raise their registered capital levels to VND3 trillion by the end of this year, triple the current minimum. According to data compiled by Reuters last month, there are still five local banks with registered capital of under VND3 trillion. Most of the other banks have between VND3 trillion and VND5 trillion.

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