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 At present, banks are in confused situation because of the 12-month duration of VND3tril chartered capital increase according to orientation of the State Bank of Vietnam. The banks will have to surge their capital source up to VND5tril in 2012 and VND10tril in 2015.

Capital increase for safety

Thomes Tobin, general director of HSBC Vietnam, said the question of ‘will the operational quality of banks surge after their capital increase?’ is a difficult problem that many banks all over the world have sought the answer. Banks need enough capital source to deal with market’s changes. Minimum capital source is essential to ensure for growth and safe operation of a newly-established bank. But the capital source should be suitable to scale of every bank, added he.

Tobin agreed that it is necessary to have regulations on minimum capital level for market and client protection. Many financial experts compared the stipulated duration of increasing chartered capital is similar to force small boats to quickly upgrade operational scale to catch fish in ocean. So will it be safe? In theory, capital increase does not mean that quality will surge along. Conversely, good management will assure safety and effiency, despite low capital.

Capital surge – it’s not easy

Recently, the State Bank of Vietnam allowed some commercial banks with VND1tril chartered capital to list up on the bourse in a bid to make opportunities for capital mobilization. Fluctuation of indexes on the bourse will not help the banks earn needed capital source. Therefore, dissolution or mergence will be surely worse than before listing.

In the present situation, if without efforts, many banks will not keep pace with the level of capital increase. Once banks surge their capital, they are forced to sharply raise lending. However, the deed is not easy.

Till late 2001, legal capital levels for rural commercial banks was VND5bil and VND50-70bil for urban ones, according to Decree No.82/1998/ND-CP dated Oct.3, 1998  and till late 2008, legal capital levels were at VND1tril and VND3tril in 2010 for both urban and urban banks, based on the Decree 141/2006/ND-CP dated Nov. 22, 2006.

‘Within 9 years, banks must rise their chartered capital up to 50-600 times. This is a burden for banks. The capital increase requirement doubles banking sector’s average growth pace. It is a peculiarity’, said lawyer Truong Thanh Duc, legal director of BaoVietBank.

He added ‘the requirement seems to eliminate small banks to create huge banks. The capital increase requirement in a short time is synonymous with pressure of expanding scale, increasing credit outstanding loans and hot growth. This will be one of the most dangerous risk for banks’.

Therefore will be necessary to force all banks to be huge ones?. If falling into bankruptcy, small banks will cause less risk for banking system. The problem needs to be considered by lawmakers.

Reported by T.Vy – Translated by A.C