Chance for EU Banks to Boost Operations in Vietnam

The State Bank of Vietnam (SBV), the country's central bank, has issued decision No. 210/2005/QD-NHNN to lift the cap on Vietnamese dong deposits for European Union-based banks operating in the country.

Under the new decision, which became effective on March 1, EU banks' Vietnam branches can now receive from Vietnamese corporate customers maximum deposits in local currency equivalent to 400 per cent of their registered capital (up from 250 per cent), as well as deposits worth up to 350 per cent of registered capital from Vietnamese individuals (up from 250 per cent).

Previously, under the Vietnam-US Bilateral Trade Agreement, Vietnam allowed US banks to mobilized capital in Vietnamese dong equalling to 400 per cent of their registered capital from organisations and 350 per cent from individuals from December 2004. The cap will be gradually raised and will be removed by 2010.

Some experts said that the move resulted from the negotiations between Vietnam and the EU in order to create a better environment for businesses on both sides. It’s part of the government’s plan in the process of negotiating for entering the World Trade Organisation (WTO).

This was not the first time that the central bank raised the cap on dong deposits for EU banks. In 2004, the central bank lifted the rate to 250 per cent from 50 per cent. The central bank has not decided whether to further raise the cap on EU banks in 2005 or not. Meanwhile, almost all of foreign banks asked the SBV to bring out a schedule for opening the sector.

Despite of not meeting the requirements, however, according to Mr. Alain Cany, Director of HSBC in Vietnam, the move of lifting the dong deposit cap on EU banks was a good signal. He hoped that Vietnam could boost its process of integrating into the world economy.

Vietnam now has 27 foreign bank branches, four joint venture banks, three wholly foreign-invested finance-leasing companies, and some 44 representative offices of foreign credit institutions. Operations of foreign banks were appreciated by Vietnam’s central bank. However, currently, they hold only a 10 per cent share of the local market.

• Lan Anh