return icon

VN banks' capital to remain weak after Basel II delay: Fitch Ratings

Fitch analysts were upbeat about continued strong economic growth in Vietnam, which makes near-term stress unlikely and underpins their stable outlook for the banking sector.


The State Bank of Vietnam's decision to offer some banks forbearance on Basel II implementation highlights weak capitalisation in the sector, with many banks in no position to meet the requirements by January 2020, says Fitch Ratings. 

Rapid credit growth and limited options for raising external capital are likely to continue to hold back significant improvements in capital ratios ahead of the new deadline of 2023 for qualifying banks, and Fitch Ratings expect the sector to remain vulnerable to shocks given its weak buffers.

It had already expected flexibility on the implementation deadline given the number of banks that were struggling to meet the requirements.

The minimum total capital adequacy ratio of 8% that will apply under local Basel II is lower than the current 9%, but the risk weightings will be much stricter. Local media reports in mid-December suggested that only 16 of the 38 local banks were able to meet the new standards.

Eventual adoption of Basel II may still encourage more active capital-raising efforts, which could reduce risks to financial stability and support improvements in banks' credit profiles. However, the impact on ratings will hinge on the extent and sustainability of the improvement in capitalisation, as well as any changes in risk profiles.

Vietinbank (BB-/Positive/b) is the only Fitch-rated bank that is reportedly yet to comply with the new standards. Vietcombank (BB-/Positive/b), Military Bank (B+/Stable/b+) and ACB (B/Stable/b) are reported to be in compliance already, but we expect their capital ratios to remain low relative to global standards in the foreseeable future.

Banks will continue to face challenges in raising external capital. Banks in Vietnam have a 30% foreign-ownership limit, which constrains their efforts to raise equity from overseas investors and makes them reliant on capital issuance in the shallow local market.

Vietinbank is among those that are already at the foreign-ownership limit. Meanwhile, we do not expect many smaller banks to attract foreign interest, given their short operating histories and fledgling franchises.

Fitch Ratings expects sector consolidation over the next few years, as smaller players struggle to meet Basel II requirements and become takeover targets. That said, regulatory intervention may be required to incentivise the better-capitalised banks to undertake a merger.

Stronger profitability and internal capital generation, amid a benign economic environment, have helped some banks to raise their capital ratios recently. However, internally generated capital tends to be depleted by rapid credit growth, and many banks have resorted to issuing local Tier 2 instruments to bridge the gap - a trend that we expect to continue. Moreover, rapid consumer lending growth, which has been a key driver of bank profitability, could become an area of potential stress if the economic environment were to deteriorate.

Nevertheless, baseline view is that economic growth in Vietnam will remain strong, which makes near-term stress unlikely and underpins our stable outlook for the sector. The positive rating outlook for the state-owned banks reflects our Positive Outlook on Vietnam's sovereign rating of 'BB' rather than any changes in our assessment of their intrinsic credit profiles. A sovereign upgrade would suggest stronger capacity to provide extraordinary support, if required.

Le Ha

First bank in Vietnam complete Basel II three pillars

First bank in Vietnam complete Basel II three pillars

Vietnam International Bank (VIB) has become the first bank in Viet Nam to complete the three pillars of Basel II, which are minimum capital, supervisory review and market discipline.  

Basel II deadline rapidly approaching, are banks on course to meet norms?

Basel II deadline rapidly approaching, are banks on course to meet norms?

In 2016 the State Bank set a deadline of January 1, 2020, for 17 banks to meet Basel II norms under a national banking sector development strategy.


Quang Ninh has new acting chairman

Standing Deputy Prime Minister Pham Binh Minh has signed a Decision No 1509/QĐ-TTg on December 2th 2022 to assign the acting chairman of People’s Committee of Quang Ninh to Cao Tuong Huy.

Vietnam to develop strategic infrastructure to lure more RoK investment: President

Vietnam will strongly develop its strategic infrastructure system to lure more investment from the Republic of Korea (RoK), President Nguyen Xuan Phuc told more than 500 enterprises attending the Vietnam-RoK Business Forum in Seoul on December 6.

Central bank to raise credit limit, banks slash interest rates

The State Bank of Vietnam has raised the domestic banking system’s credit growth by 1.5-2.0 percentage points from the previous 14% limit on December 5.

Vietnam and RoK sign MoU on sports training

Vietnam and the Republic of Korea (RoK) have signed a Memorandum of Understanding (MoU) relating to sports training, to promote international sports cooperation between the two countries in the future.

Roaming Hanoi for 1,001 specialties from different parts of Vietnam

There is no need to travel far, just a walk around Hanoi will help you taste specialties across Vietnam.


PM to attend ASEAN-EU commemorative summit, visit three European countries


Da Nang to host Vietnam International Travel Mart

Share purchases by foreign investors hit record

In the week from November 28 to December 2, the Vietnamese stock market saw foreign investors’ net purchases reaching VND9.15 trillion, raising the total net purchase since early November to VND20.2 trillion.

Employers sell private assets to offer Tet bonuses to workers

Many enterprises in Vietnam are struggling to give Tet bonuses for their workers.

Promoting PPP cooperation to develop green agriculture in Vietnam

Promoting public-private partnerships will help improve sustainability in the agricultural sector, according to experts speaking at an event in Hanoi on Monday.

Undervalued banks winning bet for investors

The recent declines of the securities market have moved bank stocks to an 'attractive zone'. Banks were trading at a P/E multiple of 7.1 and P/B of 1.3 in late November, equivalent to the lows in March 2020.

Park Hang-seo receives Order of Diplomatic Service Merit

Head coach of the Vietnamese national team Park Hang-seo has been awarded the Order of Diplomatic Service Merit, Heungin Medal, by the Republic of Korea’s President Yoon Suk-yeol for his contribution to promoting friendly ties with Vietnam.

HCM City Party Secretary: robbery must not exist on streets

HCM City Party Secretary Nguyen Van Nen said the city has a bad reputation for robbery and he has asked relevant bodies to deal with this.

Positive prospects for Vietnam’s stock market in 2023

The stock market saw a trading session with the strongest growth rate in Asia on December 2 as the Vietnam-Index surged by 4.22 percent.

A look at VN fashion through “Taste of Heritage”

After three years of suspension due to the Covid-19 pandemic, the Vietnam International Fashion Week Fall/Winter 2022 returned to Hanoi in late November with eye-catching collections in the spirit of 'Taste of heritage'.