Bankers lacking cash does not come from any market liquidity issues but from the State Bank of Vietnam (SBV) setting a new registered capital limit for local Vietnamese banks. All banks - especially joint stock commercial banks - must have total registered capital exceeding VND3,000 billion ($157 million) by the end of December. As at May there were about 22 banks, including one state owned commercial bank, with total registered capital still less than the required level, according to incomplete figures from the SBV. “If these banks do not complete their capital raising before the end of September this year, they will have to submit a plan for resolving the issue,” SBV Governor Nguyen Van Giau told a press briefing last month in Ho Chi Minh City.

Under government Decree 141 - issued in 2006 - the central bank has given all banks until the end of this year to raise their capital to the VND3,000 billion minimum, depending on their total risk-weighted assets. The international norm is 8 per cent of assets, but the SBV has fixed it at 9 per cent.

A number of local banks have been gradually implementing capital raising plans since late last year and early this year. The quantum leap in the banking sector was performed by the once-supervised Pacific Bank, which has been renamed Vietnam Tin Nghia Bank. Pacific Bank faced possible closure a few years ago and was put under the special supervision of the central bank, but it quickly raised its total registered capital to VND3,400 billion ($179 million) from VND1,133 billion ($60 million) in November 2009.

These non-listed banks usually prefer to request existing shareholders contribute more cash in capital raising, others like to convert previously-issued bonds into new additional capital, and others still are in favour of seeking new strategic partners, primarily foreign investors. For example, PG Bank will convert VND1,000 billion worth of bonds into new shares to add to their new registered capital in March 2011 to meet the SBV requirement. Meanwhile, the Ho Chi Minh City-based GiaDinh Bank plans to rely on the strength of its existing shareholders and will use part of the bank’s surplus from years ago in their capital raising plan. The TienPhong Bank - which has VND1,750 billion ($92 million) at the moment - combines the three options above with selling stakes to potential foreign strategic investors to meet the required VND3,000 billion. No further details were available at the time of writing. Nam A Bank last month gained approval from the SBV to increase its capital from VND1.25 trillion ($65 million) to VND2 trillion ($105 million) and has submitted a plan to push it to VND3 trillion ($157 million) this year.

For those banks wishing to attract a foreign strategic investor, the path seems smoother, as Oriental Commercial Bank (OCB) and the Southern Bank can attest. In late 2009 OCB shareholders voted to sell more of a stake to the bank’s existing partner, France’s BNP Paribas, from the previous 10 per cent to 15 per cent, which also assists its capital raising plans. Southern Bank, in April this year, also agreed to sell an additional 5 per cent stake to its current partner, United Overseas Bank Ltd., bringing the Singaporean investor’s ownership to 20 per cent. The plan, however, must wait for final approval from the SBV.

The Vietnam International Bank (VIBBank) managed things itself when it sold a 15 per cent stake to the Commonwealth Bank of Australia (CBA) in April this year. Mr Simon Blair, Head of International Financial Services at the Commonwealth Bank said then that CBA intends to request an increase in its investment to 20 per cent at the earliest opportunity, once both sides gain government approval. Last month also saw VIBBank receive the go-ahead from the SBV to issue 100 million shares this year to raise its chartered capital to VND4 trillion ($211.2 million). The issuance will be done in two stages to raise VND1 trillion ($52.6 million), with 40 million shares issued to existing shareholders in the first and 60 million shares to international strategic partners in the second. The CBA is the largest lender in Australia, with assets of $785 billion. It has had a presence in Vietnam for 16 years and opened a representative office in Ho Chi Minh City in 2008.

With the current difficulties facing the world’s financiers, the option of seeking foreign investors has not been as easy as local bankers expected. For this reason some banks want the SBV to extend the December 31 deadline. But Governor Giau emphasised last month that this was not going to happen. “Capital raising plans must be realistic, not where one bank’s shareholders could lend to another bank’s stakeholders,” he told local reporters last month. “Decree 141 was issued in 2006 and gave enough time to the banks. So there will be no extension.”

The SBV’s firm stance puts some smaller banks in a difficult position, as the option of issuing shares to outside investor is not beneficial when their non-listed shares are trading below their face value on the over-the-counter (OTC) market. The chance for foreign investors could stem from here, according to Mr Louis Nguyen, Chairman and CEO of the Ho Chi Minh City-based Saigon Asset Management (SAM). “Foreign investors will always be interested in a good deal,” he said. “Sometimes the smaller banks have little market share and find it tough to compete. So those with decent market share, experienced and ethical management, and a solid plan for expansion, would attract the interest of foreign investors such as us.”

Market observers forecast a possible trend in which some smaller banks may merge with each other to create a bigger bank, and they believe the idea has merit. For SAM and Mr Nguyen, opportunity knocks for both sides. “We would be interested in looking at banks that meet our investment criteria,” he said. “But to attract potential investors, banks should be more active in meeting with foreign investors.” The problem, if there is one, is the limitation of 10 or 15 per cent on foreigners investing in a Vietnamese bank, which should be raised, Mr Nguyen said.