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Setting up banks: investors now like cats on hot bricks   2008-08-05 - Tien phong

Among the banks which the State Bank of Vietnam has agreed in principle to the establishment of, only Lien Viet and Tien Phong banks have become operational.


Lien Viet became operational right after it got an official licence. In its first three months of operation, Lien Viet had earned the profit of VND200bil, while it had mobilised VND1,300bil worth of capital.


Other banks, including Bao Viet, Vietstar, Asian Foreign Trade (AFT), which were scheduled to debut in the second quarter of the year, remain silent.


Meanwhile, Kinh Bac, Energy, Indochina, Van Phong and Viet Tin banks are still being implemented.


Founding shareholders have become impatient as their thousands of billions of VND worth of capital have been ‘buried’ in the projects, while it is unclear when the projects will be licenced. Meanwhile, small shareholders are now like cats on hot bricks after the national oil and gas group PetroVietnam announced its withdrawal from the Hong Viet Bank project.


Fifteen bank projects were applied to the State Bank of Vietnam in the second half of 2007, and the investors hoped to see them become operational in 2008. However, to date, besides Lien Viet and Tien Phong, no other bank has become operational.


Bao Viet, Vietstar and AFT Bank have been actively preparing for their openings, which will allow them to officially operate right after licencing. However, no one knows for sure when the banks will appear in the market.


In January 2008, Bao Viet drew up a plan to put the bank into operation in the second quarter of 2008, while Vietstar bank said it would be operational in May 2008. However, neither bank had received a licence by the end of July 2008.


Experts say that there seem to be no opportunities for Kinh Bac, Energy, Viet Tin, Van Phong and Indochina banks to be set up, especially as the central bank is trying to restrict the number of banks under economic groups and general corporations.


Economic groups and general corporations have been ordered not to make heavy investment in non-forte business fields, especially in the banking sector, which is considered unfamiliar to them and risky.


Meanwhile, the said banks all have founding shareholders that are economic groups or general corporations. Bao Viet insurer, for example, contributes VND600bil to Bao Viet Bank (40% of chartered capital), Vietnam Airlines Corporation contributes VND150bil to Hong Viet, while the Vietnam Chemical Corporation VND50bil to Vietstar Bank. Lilama, a machine installer, and the Vietnam Automobile Industry Corporation, are the main shareholders of Kinh Bac Bank.


Hoa Phat group, a founding shareholder of Hong Viet Bank, has asked to withdraw VND1tril worth of capital it has contributed to form Hong Viet Bank. It is very likely that the move will be followed by other shareholders. Shareholders have contributed thousands of billions of VND to set up banks, but the capital has been left idle, unable to produce any profit, while shareholders are lacking capital.


The State Bank of Vietnam has become wary about the establishment of banks since experts warned that there were too many banks in Vietnam. China, a country of more than 1bil, has 13 joint-stock banks only, while Singapore has three.

The establishment of a massive number of banks is thought could lead to ‘bank inflation’, which would badly affect the country’s economic development.


By July 31, Vietnam had four state-owned banks, the Bank for Social Purposes, the Bank of Agriculture and Rural Development, six joint-venture banks, 37 joint-stock banks, 44 foreign banks, 14 finance companies, 13 finance-leasing companies and 998 credit funds.


Under Vietnamese laws, Vietnam does not prohibit the establishment of new banks. 51 applications for setting up banks have been submitted to the State Bank of Vietnam, including applications for setting up 21 domestic-owned banks.

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