Prime Minister Nguyen Tan Dung has instructed the State Bank of Viet Nam to review the circular that requires Viet Nam’s banks to increase their capital adequacy ratios (CAR) and other anti-risk measures no later than October 1.

The order to review Circular 13/2010/TT-NHNN was issued yesterday, August 20, and follows media reports suggesting that some banks would have trouble meeting the stricter CAR requirements.

The Prime Minister has told the central bank to check the veracity of the speculation and report its findings and possible solutions before the new regulations come into effect. The media reports 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 1 percentage point to a minimum of 9 per cent – 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 per cent of total deposits to be held in reserve for provision against risk, its estimated that the new regulation will keep at least 35 per cent of all deposits idle.

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

The circular also requires the banks not to lend more than 80 per cent of their total deposits and this could put more pressure on interest rates.

The new regulations set a 250-per-cent risk provision for all loans secured against securities or real estate.

In response, some banks are reported to have asked the central bank to allow for discretionary rather than a common, across-the-board standard, because property development carries a greater risk than existing real estate.

State Bank of Viet Nam Governor Nguyen Van Giau explained late last week that the circular was no more than the trigger for a low-key pilot programme while some economists have complained that the new ratios to guard against risk are still low.

The provisions of the new Credit Institutions Law that takes effect in January are even stricter than those of Circular 13 but still short of the Basel standards for finance and banking.

Rol.vn - Source: Vietnam Net