The number of applications to establish new commercial banks submitted to the State Bank of Viet Nam has increased daily since the issuance of a new decision regulating the formation of a new bank took effect on July 27.
The number of applications to establish new commercial banks submitted to the State Bank of
The State Bank reports having already received 12 applications, and some insiders expected this number would increase to as many as 30 by the end the year.
If all were approved,
The State Bank has not released any information about the applications it has received, but, according to an anonymous State Bank official, founding shareholders of the proposed banks were mostly large State-owned corporations and domestic financial institutions, such as Bao Viet Group, VNPT, FPT, Habeco, Vinatex, PetroVietnam and the State Capital Investment Corporation.
Most applicants were seeking to establish banks in the already crowded markets of Ha Noi and
High profits reported in the banking industry and attraction of banking shares on the securities market are tempting provinces and major enterprises nationwide to try to set up new banks.
However, the State Bank warned, doing business in banking carries enormous risks. Seventeen banks have closed to date due to insolvency or bankruptcy.
"I think the participation of corporations [from other fields] in the banking sector is not a good thing. Each general corporation specifies in a major operating sector. If they spread their efforts into every sector of the economy, especially into the banking industry, they will not necessarily bring with them any competitive advantages," said IPA Investments Director Doan Quang Dai.
"You can see that big multinationals like Nokia or General Motors with enormous assets don’t have their own banks. Specialisation is a surer way to make high profits."
Around 25 applications to establish new banks were already on the State Bank’s desk as of late May. Founding shareholders of these proposed banks tended to be existing banks which expected to hold up to 51 per cent of charter capital in the new banks.
However, the State Bank rejected most of these applications when it issued Decision No 24/2007/QD-NHNN on June 7. The regulation provided that no organisational shareholder would be allowed to hold more than 20 per cent of charter capital, with the limit reduced to 10 per cent for individual shareholders.
These rules caused existing banks to turn to corporate partners to establish themselves, a move also aimed at complying with another regulation requiring a new bank to have at least 100 shareholders, of whom at least three founding shareholders needed to hold VND2 trillion ($125 million) or more in total assets.
"I think the establishment will not be as smooth and sweet as they expect and it will take at least eight years to get on the right track," said Kim Long Securities director
The State Bank is entitled to reject a proposal to form a new bank based not only on criteria in the regulations but other factors relating to the sustainable development of the banking sector or whether the bank might serve an underserved market niche.
"Most banks have so far exploited only the Ha Noi and
"The central bank has imposed stricter requirements on the formation of commercial banks in order to screen the potential of banks and eliminate in advance fly-by-night financial institutions being set up for a quick profit," said Kieu Huu Dung, director of the State Bank’s Department for Banks.
Experts also warned that any newly-established banks would have little time to situate themselves competitively against foreign banks as the country would fully open its financial and banking market to foreigners over the next four years pursuant to
"Corporate and individual clients are eager to bank with foreign players post-WTO due to their better services. Newly-established banks will be the most vulnerable during the market opening as they will have to compete against giant rivals right out of the gate," said Asia Commercial Bank Director Ly Xuan Hai.
Impact on the stock market?
Local press reports have recently worried that the formation of a number of new commercial joint stock banks might also have a negative effect on the stock market.
Each new bank must have at least VND1 trillion ($62.5 million) in charter capital, so, if some 25 dossiers were approved, VND25 trillion ($1.56 billion) worth of shares would potentially be poured into the market.
However,
In the first three years from the establishment of a bank, shareholders are not allowed to transfer stakes and founding shareholders are only permitted to transfer stake after five years.
Each bank that counts an existing commercial bank among its founding shareholders would be subject to a requirement that each founding shareholder have total assets of VND20 trillion (US$1.25 billion), chartered capital of VND1 trillion ($6.25 million) and a bad debt ratio of less than 2 per cent.
(Source: VNS)
