Bank mergers mean capital difficulties for small firms DTiNews

More small banks have been merging into larger banks in Vietnam, a trend that is expected to result in difficulties for small and new companies.

More small banks have been merging into larger banks in Vietnam

Under the government’s Project 254 on restructuring the credit system in the 2011-2015 period, around seven small and weak banks will undergo mergers this year, raising the total number of merged small banks to 15-17 by the end of 2014.

Truong Van Phuoc, Vice Chairman of the National Financial Supervisory Committee, said it is law for small banks with weak competitiveness to accept mergers.

The mergers are a result of a change in capital requirements. In the past banks were required to have VND3 trillion (USD142.8 million) in capital as stipulated by Decree 141, issued in 2006. Instead, the required minimum legal capital for a Vietnamese bank will be VND4 trillion.

Dr. Le Xuan Nghia, head of the Business Development Institute, said that the US has thousands of banks with less capital than the Vietnamese requirements.

According to Dr. Nghia, the scale is important but the effectiveness of operations is the decisive factor in a bank’s survival.

Difficulties for small firms in accessing capital

In reality, many small and new companies report difficulties in getting loans from big banks.

Dr. Le Xuan Nghia said that big banks tend to try to attract big companies and ignore small ones.

In the US, the government encourages the establishment of investment companies and hedge funds for small and newly-established companies to help them get access to credit. Japan has many banks specialising in providing loans for small and medium-sized enterprises.

Because there is a lack of any such policy in Vietnam, and larger banks do not appear interested in lending to smaller firms, any small to medium-sized businesses are beginning to worry as the number of smaller banks diminishes.

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