With the diversification of business lines, commercial banks can take advantage of their own subsidiaries to boost lending in the context of the tightened credit growth and other prudential ratios set by the Vietnamese central bank.
In the last shareholder meeting, VietABank said it would establish a number of affiliated companies such as property trading and services companies, banking service providers and especially financial investment company.
While plans to increase the chartered capital from the current 3 trillion dong to 5 trillion dong in 2011, TrustBank said it would use part of the capital after the issuance of capital contribution to joint ventures with domestic and foreign partners to establish or increase the equity of companies in the fields of real estate, securities, insurance, remittances, money transfer services in the country.
Nguyen Dinh Tung, deputy general director of Maritime Bank said that the lender have planned to set up a finance company providing consumer loans with individual customers in order to operate a professional personal credit.
According to Tung, Maritime Bank’s corporate customers account for 90 percent of the total, and the bank gives priority to lending to small and medium enterprises, so the establishment of a finance company is the development plan of this bank.
Currently, the financial investment companies of some big banks such as Sacombank, ACB and others are performing quite effectively in the capital contribution or purchase of shares of other companies. This has made many small banks also plan to set up this type of subsidiary.
NamABank has consulted its shareholders about establishing MTV Southeat Asia Finance Company Limited with a chartered capital of 500 billion dong as well as joint ventures with domestic and foreign partners to set up companies or ventures in Vietnam, or capital investment and other banks. Some smaller banks also said it would earmark a certain capital for contribution to real estate investment and securities companies.
According to a banking expert, the State Bank of Vietnam has prescribed the rate of capital contribution or set up subsidiaries, but it also needs to have a special monitoring mechanism to restrict commercial banks to take advantage of this interest to make cross investment operation, abuse ownership relationships, management and administration of the parent company model and subsidiaries, endangering the safety of banking activities.
When SBV applied the ceiling deposit interest rate at 14 percent per year based on the sanction provisions of the Law on Credit Institutions, commercial banks have been limited the bypass of the law to raise funds.
However, the agreement on deposit rates between banks and customers has begun to metamorphose in more sophisticated forms such as investment trust contracts at subsidiaries of banks.
Accordingly high profit of investment trusts exceeding the ceiling deposit rate will not be limited by the provisions of SBV on interest rates.
Mobilised capital flows from subsidiaries can be transferred through the parent banks to ensure liquidity or lending. In addition, many large banks also have their subsidiaries to negotiate saving interest rates with small banks to make profits.
This situation last year was warned by the central bank for its local SBV branches to have measures to control total deposits held in small commercial banks. However, it is forecasted that this year, this situation may still occur. Because under the new regulations from the central bank, commercial banks are not allowed to deposit at each other, and banks with cheap mobilised capital have not yet demanded to disburse in the short term will use the high-cost capital of subsidiaries to solve liquidity.