Banking Position Paper 2010

More documents

Recommendations

Info

Recommendation: The Draft Circular on Mergers and Consolidations of CreditInstitution should be reviewed in conjunction with industry participants and externalexperts to ensure that the application process is straight-forward and the approvalprocess is centralized with the SBV to ensure that the consolidation process can becompleted rapidly in order to ensure stability in the banking system.4. Proposed Further Legal Capital IncreasesWe recognise the SBV’s efforts to address the need to clean up problem banks andencourage the sensible consolidation of the sector. While we agree with the objective,we also have serious concerns and issues with the implications for foreign bankbranches and foreign subsidiaries if the tool used to encourage consolidation is everhigher minimum capital requirements. In particular, we are concerned about discussedideas to extend the legal capital to VND5 trillion and VND10 trillion, by 2012 and 2015respectively, due to the following reasons:These are impossibly high levels coming in a very short period of time.The Vietnamese market is not sufficiently large to be able to prudently deploy andleverage such an influx of capital from both local and foreign banks, the latter ofwhich have only recently been established a presence in Vietnam per WTOcommitments.Based on modeling of the impact of such large capital increases, the result would befierce competition pressures, higher risk appetite and poor returns on capital. Therewill be many adverse impacts, especially on foreign banks, that are still in the initialphase of operations in Vietnam and thus need to have a careful roadmap of capitalincreases to ensure safety and soundness.Recommendation: We understand that this issue is still under discussion and we wishto be engaged in the dialogue about its impact on foreign financial institutions. Werecommend that tools and incentives be used to encourage consolidation of weak banksrather than setting ever higher minimum capital levels for all banks. We would like tosee a banking sector that encourages safe and sound competition, risk managementand use of capital, while allowing room for institutions of varying sizes.5. Foreign shareholdings in local banksDecree 69 states that the total foreign shareholding in a local Vietnamese bank shouldnot exceed 30% and that, within this limit, the maximum shareholding permitted to aninternational bank as a “strategic partner” is 15% (which can be increased to 20% withthe Prime Minister’s approval). The increase in maximum shareholdings is welcomeprogress on Vietnam’s WTO commitments. A roadmap for further deregulation of foreignshareholdings should be developed.Recommendation: There is need for clarity on scope and timing of further increases inshareholding as this would enable both the strategic partner and the local banks todevise more definitive plans. Such clarity will eventually lead to a much moreconstructive and planned approach for the banking sector in Vietnam.4
6. Clearing systemEstablishing a highly reliable and efficient settlement and clearing system is a keycomponent of the financial infrastructure required to ensure further development in thebanking sector. While clearing systems have been improved over the past several years,further progress is required in order to ensure the foundation is in place to supportfurther economic growth.Recommendation: The SBV should work with industry participants to create an efficientand reliable clearing system that:Satisfies business continuity requirements;Facilitates automated/electronic transfers across the entire country;Clears major transactional currencies (VND and USD);Guarantees liquidity requirements (appointing a lender of last resort); andEnsures security requirements.II. Market Efficiency (Pillar 2)1. FX regulations and FX PolicyDecree 160, issued since December 2006, clearly lays out the framework for dealingsbetween participants and FX products in Vietnam. However, the key implementingcirculars have not been issued to provide guidance for participants in conducting theirFX activities in line with the new law and environment. This has slowed down thedevelopment and the depth of the FX market – factors especially relevant in the currentenvironment of high volatility where exporters/importers need to use more sophisticatedhedging techniques so as not to be disadvantaged vis-à-vis their competitors operatingin other countries.More importantly, the current FX policy in regarding to the band of USD/VND limit thesupply of USD in the FX market. This adversely impact the trade flows and foreigninvestment into Vietnam market as the uncertainly surrounding the health andconvertibility of Vietnam Dong.Recommendation: We recommend urgency in issuing clear implementing circulars forDecree 160 thereby participants can operate their FX activities smoothly under the sameground rule and can cope with the current market environment. The State Bank ofVietnam should consider adopting measurements to improve the confidence in theVietnamese Dong and increase the liquidity in the FX Market.We would also recommend creating a roadmap for the development of a liquid andmarket-driven forward FX market. This would allow more investors to have confidenceto invest in Vietnam because they could hedge their risk and increase certainty of theirability to obtain hard currency to repatriate investment profits in the future.5
Page 1 and 2: BankingI. IntroductionDuring the gl
Page 3: A parent guarantee and/or SBLC has
Page 7 and 8: Recommendation: It is recommended t

Banking Position Paper 2010

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?