Many commercial joint stock banks are racing against time to increase their charter capital by the year-end to meet new minimum stipulations set by the central bank.

Under Decree 141/2006/-ND-CP, non-State commercial joint stock banks licensed before the end of 2008 were required to have at least VND1 trillion in charter capital, but this has been increased to VND3 trillion by the 2009-10 fiscal year.

Commercial banks currently in operation are also required to meet the capital requirements specified in the decree, failing which they will be penalised as decided by the Governor of the central bank.

This would involve being forced to merge, having the scope of their operations reduced, or even having their operating licence revoked.

Western Bank deputy general director Nguyen Quoc Sy said they had already made a plan to increase step by step the bank's charter capital to VND3 trillion by the end of the year.

Western Bank's legal capital would be raised to VND2 trillion by April when it completes listing its shares on the HCM City Stock Exchange, Sy said.

The additional capital would be used for developing credit, with priority given to enterprises and individuals directly involved in production and trading activities.

The bank's remaining additional capital would be mobilised before the year-end, Sy said.

The Phuong Dong Commercial Joint Stock Bank also plans to increase its charter capital from the current VND2 trillion to VND3 trillion as required by the central bank at the end of the year, according to its general director Tran Van Vinh.

The plan to raise the funds would be submitted to the bank's annual general shareholders meeting later this month, Vinh said.

Many other commercial banks including Dai A, VietBank and HDBank are engaged in similar efforts. Most of them need to add at least VND1.5 trillion to their current charter capital to meet the central bank's requirements.

But it is not just small banks that are looking to increase their chartered capital. Large banks wanting to become more competitive are also in the fray.

The Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank) is making necessary preparations for raising its charter capital from current VND6.7 trillion to over VND9.1 trillion by issuing shares with dividend of 15 per cent.

However, many commercial banks are also worried about the pressure raising capital would create on their dividend obligations.

A representative of Eximbank said that the bank wants to adjust its charter capital from the current VND8.8 trillion to a higher level but it is considering the plan carefully.

In 2009, the bank made pre-tax profits of VND1.5 trillion and this figure is not expected to be topped this year. So the bank may find it difficult to pay dividends if it raises its charter capital, he said.

(Source: Vietnamnet)