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  Banking Finance

SBV mulls equitisation of commercial banks

To raise charter capital and the level of competitiveness of State owned commercial banks (SOCBs), the State should speed up the process of equitising SOCBs and pump more charter capital into them, an official from the State Bank of Viet Nam (SBV) has said.

At a seminar held by the SBV in Ha Noi on Tuesday, Director of SBV’s Bank Development Strategy Department Le Xuan Nghia said SOCBs seriously lacked capital, needing about VND13 trillion (US$828 million) immediately and VND117 trillion ($7.45 billion) by 2010.

"Demand exceeds the allocation capability of the State budget. Therefore, the best way to mobilise capital for SOCBs is issuing stocks," Nghia said.

"Not only does it help reduce pressure on the State budget, it also creates favourable conditions for SOCBs to issue long-term debt and derivative tools to diversify their capital."

He said equitising SOCBs would enhance management capability, modernise technology and develop new banking products.

"It is necessary for SOCBs to encourage the participation of foreign partners to strengthen their management capability.

Furthermore, equitising SOCBs will also create more favourable conditions to lure capital and experienced foreign investors with abundant finance capabilities to take part in managing banks after equitising them."

"Equitising SOCBs also helps them strengthen competitiveness when Viet Nam is applying for integration."

He asked concerned ministries to amend current decisions in order to define SOCBs as enterprises that should be equitised.

The Government should have a finance mechanism to help SOCBs address their bad debts before equitising, Nghia said, adding that the Ministry of Finance (MoF) should promulgate regulations of classifying, assessing, and setting prices on lending and investing in SOCBs’ major assets.

"In the short term, SOCBs should be allowed to hire foreign independent consultants to assess property quality and calculate enterprises’ values following international standards," Nghia said.

He added that the SBV should mull regulations on defining criteria of bad debts following international standards.

The SBV ought to submit "raising ownership capital for SOCBs" and "equitising several SOCB" projects for Prime Minister approval, Nghia added.

According to the SBV, the State has pumped around VND9 trillion into increasing charter capital for four SOCBs, including, as of this June, 4.43 per cent into capital adequate ratio (CAR) of Bank for Commerce and Industry of Viet Nam (BCIV); 4.7 per cent into the Bank for Foreign Trade of Viet Nam (Vietcombank); 5.25 per cent into the Bank for Investment and Development of Viet Nam (BIDV); and 6.17 per cent into the Bank for Agriculture and Rural Development of Viet Nam (BARDV).

In the next few months, the MoF, along with the SBV and the Ministry of Planning and Investment, will add more than VND1.5 trillion.

Up to June of this year, the total overdue debts of SOCBs accounted for 65.5 per cent total overdue debts.

By the end of 2005, equitised banks will be developed with strengthening management capability, larger branch networks across the country, and increased operation efficiency and CAR, said Tran Ngoc Minh, director of the SBV’s HCM City Branch.

From 2006 to 2010, SOCBs should develop modern banking services.

After 2010, commercial banks should operate following international standards governing capital, management and information technology to meet the needs of the economy.

Nguyen Dinh Tai, an expert from the Central Institute of Economic Management, said equitised banks will confront fierce competition with nearly 40 domestic joint stock commercial banks, four joint venture banks, 15 branches of foreign banks and SOCBs from now until 2010.

In particular, they will face off with foreign banks that have abundant finance capabilities and modern technology.

VNA - (05/08/2004)

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