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How to deal with mini banks?   2008-11-25 - DTCK

Under the Decree No. 141 stipulating the legal capital of credit institutions, banks must have VND 1 trillion in chartered capital prior to January 1, 2009. Cao Sy Kiem, former Governor of the State Bank of Vietnam, talks about whether banks can increase their capital to meet the requirements and how to deal with the banks, which cannot meet the requirements.

 

Only one month left for banks to increase their chartered capital to VND 1 trillion. Which do you think will be the banks able to increase capital prior to the set time?

 

Cao Sy Kiem, former Governor of the State Bank of Vietnam

Despite the great difficulties in the financial market, the chartered capital of the banking system still increased by 28% in the first ten months of the year. As far as I know, nine joint stock banks still have the chartered capital at below VND 1 trillion. I think that only the banks which now have VND 800-900 billion in capital will be able to increase capital prior to the set moment, while the ones with VND 500-600 billion in capital will not.

 

Could you please tell us more about that?

 

As the stock market keeps plummeting, and even the stocks of well known banks are being traded at low prices, banks seem to be unable to issue shares to increase their chartered capital and find strategic partners as well.

 

In 2008, banks have also been facing a lot of difficulties, and many of them have to lower the targeted turnover and profit plan, which means that it is impossible to increase capital with profited money.

 

As a banking expert, are you worried about that?

 

At a very sensitive time as it is nowadays, it would be very dangerous if a bank, unable to meet the requirement on chartered capital, and later becomes dissolved. Therefore, the State Bank of Vietnam should think and submit to the Government the measures to deal with the problems to be arisen, to ensure that banks will have VND 1 trillion in chartered capital by January 1, 2009.

 

Vietnam’s banks prove to be too small, with US $30 million in chartered capital only. The increase of chartered capital to become stronger has become an urgent task, especially after Vietnam joined the WTO.

 

Do you think that we should merge small banks into each other to get bigger ones?

 

This is really a measure but it is difficult to be implemented. It always happens that a weak business is merged into a strong business, or businesses with some advantages are merged into businesses with other advantages. Meanwhile, the merge of weak businesses into each other will not make the businesses stronger.

 

In principle, the central bank does not force small banks to merge into other banks by administrative orders. However, if the situation becomes dangerous, the central bank has to make the decisions to ensure the safety for the whole banking system.

 

What will happen if some banks cannot increase capital as required? Will we let banks dissolve, or amend the Decree 141?

 

It is really a difficult question whether Vietnam should let a weak bank go bankrupt, though the bankruptcy of a bank proves to be a normal thing in the world. As far as I know, the State Bank of Vietnam is considering many solutions, including allowing the dissolution of some banks or merge into bigger banks. If worse things are to occur with some banks, the state will have to ensure the benefits of depositors.

 

Do you think that the State should inject money in the banks when the stocks now prove to be very cheap?

 

Injecting state’s money in small banks to become strategic shareholders of the banks, restructuring banks and then selling the stakes of the banks, are the things that have been occurring in many countries. However, no precedent has been seen in Vietnam, while the law on state budget does not stipulate the sum of money for this work.

 



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