Vietnam Bank Association calls for raising charter capital at four major State banks

The Vietnam Bank Association (VBA) has repeated its call for the Government to approve charter capital hikes at four major State-owned commercial banks, noting that the delay could adversely affect money supply for the economy.

Vietnam Bank Association calls for raising charter capital at four major State banks
VietinBank employees are at work. The bank is in desperate need of a charter capital hike

The credit supply of the four State banks – the Bank for Investment and Development of Vietnam (BIDV), the Vietnam Bank for Industry and Trade (VietinBank), the Vietnam Bank for Agriculture and Rural Development (Agribank) and the Bank for Foreign Trade of Vietnam (Vietcombank) – may not grow, possibly leading to declines in gross domestic product growth and tax revenue for the State, according to the VBA.

Also, the capital adequacy ratio (CAR), an international standard that measures a bank’s risk of insolvency from excessive losses, may be violated, which would adversely affect the banks’ operations, international credit ratings and reputation as well as limit their key role in the country’s overall banking system.

Earlier, the State Bank of Vietnam asked local banks to meet minimal capital requirements, based on Basel II, an international business standard that requires financial institutions to have enough cash reserves to cover risks incurred by operations.

Since then, the four major banks have carried out specific plans focused on restructuring and improving their business performance.

They have also adopted various measures to enhance their financial capacity. These include controlling their credit growth rates in line with the instructions of the central bank, restructuring their portfolios of risky assets in a way that reduces risk-weighted assets, and issuing secondary bonds to increase tier-2 or supplementary capital.

Despite their concerted efforts to adopt these measures, the banks have yet to meet the CAR standards, according to the VBA.

The association cited current statistics, stating that the minimum CAR ratio of the four banks, in line with the Basel I standards, averages 9.4%, which closely reaches the minimum levels of regulations and is much lower than the average level of domestic credit institutions at 13%.

VietinBank faces substantial capital needs

Among the four banks, according to the VBA, VietinBank desperately needs to raise its charter capital. Since 2014, the lender has not received fresh capital injections.

During the same period, VietinBank has maintained its average scale growth rate of 18.5% and has paid dividends in cash with a high rate of 7%-10% of its charter capital.

As a result, the CAR ratio of the lender currently reaches the minimum levels under the regulations of the central bank.

VietinBank has already adopted all measures to increase its capital to the maximum. It is hampered by the existing regulations on State ownership and foreign ownership at State-owned banks as well as the ratios of secondary bonds and secondary debts.

 

Consequently, VietinBank saw credit expansion of only 6% last year, the lowest in over 10 years. This affected its ability to cope with the capital demand of businesses and had direct impact on the business results of the bank and the State budget revenue.

At present, the total assets and outstanding loans at the four banks account for some 50% of the total in Vietnam’s banking system.

Though these banks have not been funded by the State in recent years, they have still expanded their credit to meet the capital needs of the economy, according to the VBA.

The VBA stated that priority measures are urgently needed to deal with the charter capital hike. Therefore, the association suggested the Government allow the banks to retain their annual profits and pay their dividends in shares to accumulate capital as quick-fix solutions.

Banks face heavy capital burden despite dividend plan: Fitch

Fitch Ratings, one of the Big Three credit rating agencies based in the United States, said in a statement that the VBA’s plan will help Vietnamese State-owned commercial banks meet regulatory minimum capital thresholds.

However, the positive effect is likely to be limited relative to the large capital needs State-owned banks are facing amidst rapid balance sheet expansion, underreporting of problem loans and the impending Basel II application at the beginning of 2020.

Vietnamese banks will have substantial capital needs in the run-up to the adoption of Basel II. These standards will increase banks’ risk-weighted assets due to changes to credit risk-weights and the introduction of capital charges for operational and market risks, said the agency.

The agency estimated Fitch-rated Vietnamese banks would need US$4.1 billion in additional capital, of which 90% is accounted for by the State-owned banks. These banks’ much larger capital shortfall reflects their lower capital positions and weaker profitability relative to private banks.

The lack of depth in the local capital markets and foreign ownership limits continue to constrain banks’ ability to raise common equity, which Fitch views as the best form of loss-absorbing capital. SGT

Thanh Thom

Most Vietnamese adults to have bank accounts by 2030

Most Vietnamese adults to have bank accounts by 2030

The State Bank of Vietnam (SBV) must take action to ensure 90 percent of the Vietnamese population over the age of 15 have bank accounts by 2030.  

Cross-ownership in Vietnam's banking system almost resolved

Cross-ownership in Vietnam's banking system almost resolved

Cross-ownership in the country’s banking system had almost been eliminated, a recent report by the State Bank of Vietnam (SBV) showed.

 
 

Other News

.
EuroCham stresses importance of stimulus packages in Vietnam’s post-pandemic recovery
EuroCham stresses importance of stimulus packages in Vietnam’s post-pandemic recovery
BUSINESSicon  08/07/2020 

State financial support for companies hit hard by the Covid-19 pandemic, regardless of the level they are yet, and subject to the Government’s consideration in terms of budget range and macroeconomic stability, 

Private sector involvement proposed in Chu Lai airport project
Private sector involvement proposed in Chu Lai airport project
BUSINESSicon  07/07/2020 

The authority of Quang Nam Province has proposed that private investors be allowed to participate in the construction, management and operation of Chu Lai airport, similar to the investment model adopted for Van Don airport in Quang Ninh Province.

Fitch Ratings says Vietnam outperforms among Asia’s frontier sovereigns
Fitch Ratings says Vietnam outperforms among Asia’s frontier sovereigns
BUSINESSicon  07/07/2020 

According to Fitch Ratings, Vietnam is positioned to stand out among Asia’s frontier and emerging markets this year as a result of its economic resilience and success in bringing the novel coronavirus pandemic under control.

Vietnam’s bond market posts highest growth in emerging East Asia: ADB
Vietnam’s bond market posts highest growth in emerging East Asia: ADB
BUSINESSicon  07/07/2020 

The local currency (LCY) bond market in Vietnam posted the highest growth in the emerging East Asia region, as authorities took fiscal and monetary policy actions to mitigate the economic fallout from the coronavirus pandemic.

China is largest plywood investor in Vietnam
China is largest plywood investor in Vietnam
BUSINESSicon  07/07/2020 

China has invested in 29 plywood projects worth over US$150 million in Vietnam, becoming the country’s largest plywood investor, according to Ngo Sy Hoai, vice chairman of the Vietnam Timber and Forest Products Association.

Customs authority discovers multiple cases of origin fraud
Customs authority discovers multiple cases of origin fraud
BUSINESSicon  07/07/2020 

Country of origin fraud cases, wherein Chinese products bear Made-in-Vietnam labels, are on the rise, with Vietnam’s customs authority recently inspecting 76 cases

Thai firm buys two wind power farms in Vietnam
Thai firm buys two wind power farms in Vietnam
BUSINESSicon  07/07/2020 

The move aims to take advantage of low interest rates to build projects with a quick return on investment.

FIEs displeased with government demand to license internal websites
FIEs displeased with government demand to license internal websites
BUSINESSicon  07/07/2020 

The new regulations of the MIC may affect the policies and assets of private businesses and foreign-invested enterprises in Vietnam.

Amended law alters funding landscape
Amended law alters funding landscape
BUSINESSicon  07/07/2020 

The Vietnamese National Assembly has adopted the new Law on Investment, with new rules in favour of foreign investment, including from the US, which is expected to surge in Vietnam in the time to come.

New investment wave starts despite COVID-19
New investment wave starts despite COVID-19
BUSINESSicon  07/07/2020 

The new wave of foreign investment triggered by COVID-19 and US-China trade tensions is becoming more visible as outstanding overseas ventures are expanded.

Stronger money policies might be considered to aid economic growth: SBV
Stronger money policies might be considered to aid economic growth: SBV
BUSINESSicon  07/07/2020 

The State Bank of Vietnam could increase credit growth limits for credit institutions this year or even launch stronger monetary policies to aid the country’s post-pandemic growth, Governor Le Minh Hung has said.

Guiding decrees needed to fight with transfer pricing in Vietnam
Guiding decrees needed to fight with transfer pricing in Vietnam
BUSINESSicon  07/07/2020 

Anti-transfer pricing measures were included in the Law on Tax Administration for the first time, but a guiding decree has not yet been written. Experts said this could mean the rules are less effective.

VN corporate bond market to boom in second half
VN corporate bond market to boom in second half
BUSINESSicon  07/07/2020 

Companies are looking to raise debts from bond issuance before the amended Law on Securities takes effect next January.

E-commerce in Vietnam thrives during COVID-19
E-commerce in Vietnam thrives during COVID-19
BUSINESSicon  08/07/2020 

“Covid-19 has given e-commerce a push,” said Nguyen Thuy Anh from the Department of E-commerce and Digital Economy.

Local banks warn they may become ‘hostage’ of businesses
Local banks warn they may become ‘hostage’ of businesses
BUSINESSicon  08/07/2020 

If large businesses cannot pay their debts, they may put pressure on banks to lower requirements for loans.

Is there a new wave of bank shares landing in VN stock market?
Is there a new wave of bank shares landing in VN stock market?
BUSINESSicon  08/07/2020 

Commercial banks have six months to fulfill procedures to list their shares on the bourse, as requested by the Prime Minister.

Moving from former adversaries to trusting and valued partners
Moving from former adversaries to trusting and valued partners
BUSINESSicon  07/07/2020 

Through candid dialogue, mutual respect, and a strong commitment to succeed by the leadership of both countries, Vietnam and the United States created a comprehensive partnership that identifies areas for both countries to work together.

EVFTA expected to give a lift to real estate sector
EVFTA expected to give a lift to real estate sector
BUSINESSicon  06/07/2020 

Many segments of the real estate market are soon expected to benefit from the EU-Vietnam Free Trade Agreement, which takes effect in August.

Whether Apple to build nest in Vietnam?
Whether Apple to build nest in Vietnam?
BUSINESSicon  07/07/2020 

Foxconn’s rush expansion in Vietnam raise nosy that whether Apple will choose the country as the place to build nest.

American groups make progress across Vietnam
American groups make progress across Vietnam
BUSINESSicon  06/07/2020 

Vietnam, as one of the fastest-growing economies in the ASEAN bloc, is becoming more appealing to American investors.

 
 
 
Leave your comment on an article

OR QUICK LOGIN