Bad debt stops bank expansion

Thursday, Sep 12, 2013 08:00

HDBank's Hoan Kiem office. The new requirement is a big challenge for many banks in the system, where the overall bad debt ratio is 4.46 per cent. — VNA/VNS Photo Tran Viet
HA NOI (Biz Hub)— Commercial banks are banned from opening new branches if they have a bad debt ratio of more than 3 per cent of their total outstanding loans, announced the State Bank of Viet Nam (SBV).

The regulation is part of the new policies set by Circular No 21/2013/TT-NHNN, governing the opening of branch and transaction offices by commercial banks, which takes effect from October 23.

Independent experts estimated that the bad debt ratio requirement to open branches was rather challenging for banks, as the bad debt ratio in Viet Nam's banking system was at a standstill of 4.46 per cent for the total loans in June. Probably only very good-performing commercial banks are able to meet the new standard. This makes the trip to a new branch of a commercial bank harder but safer.

The State Bank also tripled the minimum capital requirement for a new branch to VND300 billion (US$14.16 million). Commercial banks under one year old are allowed to open up to three branches in different cities or provinces within a financial year. The cap for banks over one year old is five branches.

A commercial bank is allowed to open no more than 10 branches in the inner area of Ha Noi or HCM City.

In fact, too many banks are concentrating only in key areas like Ha Noi and HCM City, creating a lot of redundancy in banking services while the rest of the country is neglected.

The latest SBV move dates back to a similar story in 2007 when a strong flux of banks applied to establish new commercial banks and the central bank had to raise standard requirements in order to filter out the ones with the most potential. — VNS

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