VietNamNet Bridge – The health of commercial banks is now at their best conditions, if compared with the other months of the year, according to the State Bank of Vietnam.

After the plunge in January 2013, the total equity of joint stock banks had always been lower than their chartered capital until recently, when the upward trend is shown.

The basic finance indexes of commercial banks have shown significant improvement since September 2013, especially the ones of joint stock banks, not including the equitized banks, in which the State still holds the controlling stakes.

The LDR (loan to deposit ratio) of the whole banking system has been measured at 86.19 percent. In 2011 and earlier years, the ratio was always at over 100 percent, while the market witnessed the interest rate race among banks with liquidity problems.

With the credit growing more strongly in recent months, the CAR (capital adequacy ratio) of the banking system has slightly decreased, but remains at a high level of 13.76 percent by September 30. The ratio is much higher than the minimum level of 9 percent required by the State Bank.

State owned banks have shown the sharp increase in their total assets and equity. By September 30, the total assets had reached to VND2,350 trillion (up by 7.04 percent over the end of 2012), while the equity had increased by 18.44 percent and chartered capital by 10.66 percent.

Joint stock banks have also seen a significant improvement in their capital with the total assets reaching VND2,220 trillion.

The most noteworthy thing of the September report is the clear improvement of joint stock banks’ equity, which is the result of the great efforts made in the months before.

Analysts commented that the wound of joint stock banks, a serious one in the last many years, is healing.

In January 2013, the total equity of joint stock banks unexpectedly tumbled by 8.93 percent in comparison with the end of 2012.

A bank’s equity comprises of its chartered capital plus funds. Meanwhile, equity was once even lower than the chartered capital, which showed a big problem of joint stock banks.

The problem had existed until September, when the equity began increasing and it is now nearly equal to the chartered capital (VND181.979 trillion vs. VND182.244 trillion). Pls see chart above. The red line shows the banks’ equity and blue line shows the banks’ chartered capital

Equity is considered the last “defense line” which protects credit institutions. Once the index sees improvement, this means that the efforts by some members of the joint stock bank group have brought effects.

However, analysts have pointed out that the banks’ equity has increased partially because of the chartered capital increase. In September 2013, the chartered capital of joint stock banks increased by VND1.711 trillion.

Though the banks’ equity is still lower than the chartered capital, the upward trend in September has kindled a hope that the situation would be further improved in the next months.

The Vietnam Asset Management Company (VAMC), the powerful company set up to help settle the banks’ bad debt, still had not played any role in the banks’ improvement by September. VAMC only began purchasing bad debts in October 2013.

K. Chi