Thursday, December 8 2016

VietNamNews

Banks might face risks by opening new offices

Update: March, 08/2016 - 00:12
Sacombank's network has also increased from 400 to 563 offices, after a merger with Southern Bank. — Photo sacombank

HA NOI – Many banks have recently opened numerous branches and transaction offices, causing concerns about safety for the banks and unhealthy competition within the banking system.
It is estimated that more than 20 banks were licensed to open over 100 branches and offices during the first two months of this year.
In January and February, Nam A Bank, for example, opened 9 new branches and offices, while Viet Capital Bank opened ten sites. The number of new branches and offices opened by Kien Long Bank, PG Bank and Vietcombank was 14, 9 and 5, respectively.
The banks said they had to open more branches and offices to prepare to meet their retail banking model target.
However, enlarging the network was, in fact, aimed to increase the banks' brand coverage, which is expected to help them compete against other banks with large networks of branches and offices by other means than mergers and acquisitions.
BIDV, for example, has seen its network of offices skyrocket to 980 in a short time, after merging with MHB. It would have taken BIDV up to seven years to set up such a large number of sites, had they not merged.
Sacombank's network has also increased from 400 to 563 offices, after a merger with Southern Bank.
The same trend was seen with Maritime Bank, HD Bank and SHB, whose offices increased to 300, 220 and 329, respectively, after their merging with other banks.
Therefore, other banks, which did not take part in the mergers, have to repeatedly apply to the central bank for licenses to open new offices.
According to current regulations, besides earning profits, complying with the central bank's regulations on operational safety, and having non-performing loans of fewer than 3 per cent of total outstanding loans, the minimum capital requirement for opening a new branch and transaction office in Haø Noäi and HCM City is VNÑ300 billion (US$13.3 million), and VNÑ50 billion in other cities and provinces.
To meet the central bank's regulation on capital, small-sized banks have been opening new branches and offices in other cities and provinces, other than HCM City and Haø Noäi.
A banking leader, who declined to be named, said that enlargement of the network is indispensable for banks during the ongoing increased competition.
Bank officials noted that by opening new sites, it is easier to attract depositors and borrowers.
However, industry insiders warned there are increased risks for banks if performance of their new branches and transactions offices was unsuccessful, as operating costs might increase while the effectiveness of new transaction offices, especially in rural areas, was often low.
Besides, large-scale enlargement could cause an unhealthy competition among transaction offices by taking advantage of loopholes to exceed the central bank's regulation on interest rate caps to attract capital mobilisation, they said. – VNS
 
 

 

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