Stricter control imposed on opening new bank branches

Thursday, May 8, 2008
As of May 14, banks that want to open new branches, transaction points or representative offices will have to obey Decision No 13 on the regulations on the networks and operations of commercial banks – a stricter decision than its predecessor.

Under the decision, banks can only open new branches, transaction points one year after their date of opening, if they meet the requirements set by the State Bank of Viet Nam. The banks must make profit in the year before the year when they ask for permission to open new branches. They must meet requirements in capital adequacy ratio and other financial indices. They must have a bad debt ratio of less than 3% of total outstanding loans.

Banks can open overseas branches and representative offices when they meet the requirements as follows: have the operation period of five years at least, make profit in the three years prior to the year when they want to open branches. Moreover, they cannot have been fined VND30mil ($1,875) or more by State Bank inspectors the year prior to when they want to open branches. Additionally, the countries in which the banks want to open branches must have agreements with Viet Nam on cooperation in supervising and inspecting Vietnamese banks.

Commercial banks must have VND100bil ($6.25mil) at least for every new branch to be opened in Hanoi or HCM City (it was VND20bil or $1.25mil under the previous regulation), and over VND50bil ($3.12mil) for every branch to be opened in other localities (it was VND10bil or $0.6mil under the previous regulation).

Analysts say that with the new regulation, commercial banks will have to increase their chartered capital in order to meet the financial requirements to expand their networks.

Eximbank’s representative, for example, said that the bank is planning to have 110-120 branches and transaction points in 20 cities and provinces nationwide by the end of 2008. Therefore, the bank has to increase its chartered capital from VND2,800bil to VND7,380bil this year.

As for Sacombank, it plans to open six more branches in Vietnam (two in Hanoi, two in northern provinces, and two in HCM City). Moreover, it also plans to set up branches in Laos and Cambodia.

ACB also has an ambitious plan to enlarge its operation network. It intends to open 93 branches and transaction points by the end of the 2008 fiscal year. If successful, ACB’s network will have 204 branches and transaction points. However, the bank’s representative said that the newly promulgated regulations may force them to reduce their plan.

In fact, not every bank is ready to open more branches and transaction points at this moment. The central bank’s tightened monetary policy makes them think that opening more branches at this moment may bring loss. Credit activities of banks have been narrowed due to higher capital mobilisation costs and capital shortage; meanwhile, the fee for workshop premise leasing is increasingly high. (DTCK)