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Draft law triggers banking criticism   2009-07-12 - VIR

 Foreign banks have been desperately calling for a change in the newly-drafted Credit Institutions Law, but with only slim hopes for it.

The new Credit Institutions Law was drafted in late 2008 and has been amended four times. The latest draft law on credit institutions, which will be brought into discussion at a government meeting this July, triggered criticism, as it restricted the single borrower limit for foreign branches to the branch capital.

Article 128 under the draft law reads that total lending of a foreign branch to a single borrower would be limited at 15 per cent of its capital, rather than 15 per cent of the holding bank’s capital, as stated under current regulations.

“It’s a stressful period for us [foreign banks]. If Article 128 is officially regulated, it would clip our wings,” a representative of the Vietnam Business Forum’s Banking Working Group (BWG) told VIR at a conference last week, discussing the new drafted Credit Institutions Law, coorganised by the Vietnam Banking Association (VNBA) and the Vietnam Chamber of Commerce and Industry (VCCI).

According to the draft law, foreign bank branches in Vietnam with chartered capital of $15 million would be allowed to lend one customer no more than $2.25 million. A Korea Exchange Bank (KEB) representative said that the bank had two branches in Vietnam, and thus “could lend to one borrower a maximum of $4.5 million”.

“It is really inappropriate. These figures are really small. Sixty per cent of our customers are currently borrowing more than $4.5 million,” she said. KEB’s source added that one Korean company was planning to borrow up to $20 million for a project related to the Dung Quat oil refinery plant.

“If the lending cap is maintained, I can say that all the Korean bank branches in Vietnam will join together to offer syndicated loans. But this will still not be enough. This change will backtrack the country’s World Trade Organization commitments to open up the banking sector,” she said.

VNBA general secretary Duong Thu Huong said that the association would petition the State Bank. “We fully support the foreign banks in Vietnam in this case,” she said. BWG’s representative in turn said that the hope for change was slim. “The new law has been drafted four times, and all three previous times we asked the State Bank to change Article 128 without success,” said the BWG representative.

Akihiro Saito, director of Mizuho Corporate Bank’s Hanoi branch, said that if the article was approved, foreign branches would have to choose between increasing capital or decreasing total outstanding loans in Vietnam. “Increasing branch capital, which has always been a big decision, is mostly impossible given the current global financial turbulence, while collecting undue loans would hurt our customers, who are mainly Japanese foreign direct investors in Vietnam,” said Saito.

“This will have a catastrophic effect not only on financing critical foreign direct investment and international companies in Vietnam, it will also have an adverse effect on large Vietnamese companies and infrastructure projects seeking foreign capital for growth,” the Vietnam Business Forum’s BWG representative concluded.

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