Banking Position Paper 2010

A parent guarantee and/or SBLC has been commonly used as a capital substitute inmany countries to allow prudent lending above the single lending limit set by centralbanks. The guarantee and/or SBLC will be issued in respect of an exposure of thegroup entity to a third party, e.g. the off-shore parent bank guarantees its Vietnambranch or subsidiary against a specific exposure of the Vietnam branch or subsidiary toa third party borrower for amounts exceeding the single lending limit.This solution shall enable corporate customers in Vietnam to access their required largefunding for their business expansion. This solution will greatly help in the event domesticfunding is not available for large business projects. Government Guarantees and ECA GuaranteesEuroCham would like to recommend that where a financing is supported by aGovernment guarantee (by the Government of Vietnam or a foreign Government) or anExport Credit Agency, the loan shall be taken out of the total single lending limit the bankcan extend to that particular borrower.This solution will help all banks in Vietnam, including foreign bank branches, to be ableto finance large-scale critical and important infrastructure and other major projects inVietnam to support the Government development plan. Consolidated Capital of BranchesWe would recommend the State Bank of Vietnam to allow foreign banks with more thanone branch in Vietnam to calculate the single lending limit on a consolidated basis of allthe branches' capital. Even in case the branches have been operating, accounting andreporting independently, they are actually under one entity as one foreign bank, followingthe consolidated credit concentration risk control as a whole, and acting under the samepolicy and strategy as branches in Vietnam of one foreign bank. Therefore, we believethat the calculation on the consolidated basis of all the branches' capital is in line withthe risk control purpose of Article 128. Guideline for Prime Minister’s exceptional approvalIt would be recommended that the State Bank of Vietnam provide a guideline for allbanks on how to apply for the Prime Minister’s exceptional approval under Article 128.7where the single lending limit is exceeded, eg. on required documentation, criteria andprocedures, etc. We believe that a standard process would create a level playing field toall market participants in Vietnam.3. Consolidation of banking sectorThere remain over 80 banks in Vietnam, where the top 20 banks are estimated to do thebulk of the banking business. There is concern that weaker banks could pose a threat toconfidence in the banking system through their instability and lack of critical mass.Decree 59 aimed to address this issue by increasing the minimum legal capital for jointstock banks from VND1 trillion to VND3 trillion. Over time, this may lead toconsolidations, mergers and acquisitions in the banking sector. In preparation for this, itis critical that any banking consolidation is supported by a legal and proceduralframework that ensures clarity in process and speed in action.3