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NEWS UPDATES 20 August 2010

Review of Vietnamese bank requirements ordered

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Vietnamese Prime Minister Nguyen Tan Dung has instructed the State Bank of Viet Nam to review the order requiring

Viet Nam's banks to increase their capital adequacy ratios (CAR) and other anti-risk measures no later than Friday, Oct. 1. The prime minister has told the central bank to check the truth of speculation that banks will have difficulty meeting the order and report its findings and possible solutions before the new regulations come into effect.

Media report that as many as 14 commercial banks as well as the Viet Nam Banks Association have asked the central bank to extend the deadline since the middle of last month.

The banks needed more time to restructure their investment portfolios, bank management and the association argued.

The new regulations require commercial banks to raise their CAR one percent to a minimum of 9 percent – and select only certain types of investment capital for equity.

The circular also restricts bank use of non-term deposits from economic institutions, the State Treasury, the social insurance fund or other organisations for commercial lending.

With the requirement for another 20 percent of total deposits to be held in reserve for provision against risk, it's estimated that the new regulation will keep at least 35 percent of all deposits idle.

This is clearly untenable and it has been suggested that some banks may not be able to balance their books.

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