Talking to the press, deputy general director of Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank) Nguyen Thanh Phuong recently said that for many years, Agribank’s charter capital has not been supplemented, and the bank’s charter capital increase is always lower than the growth of total assets. That leads to the decline in the bank’s Capital Adequacy Ratio (CAR).
Under the Basel II standards (stipulated in Circular 41/2016/TT-NHNN), the bank’s CAR was only 7.3 percent as of December 31st 2019, 6.9 percent as of March 31st 2020 (not satisfying the minimum requirement of eight percent of the State Bank of Vietnam (SBV)).
To meet the Basel II standards, Agribank is in need of a large source of capital in the period of 2019 2020 to offset its equity shortage. Since the bank has not satisfied Basel II standards, the SBV currently allows Agribank to follow the CAR required in Circular 22/2019/TT-NHNN dated November 15th 2019.
Specifically, as of March 31st 2020, Agribank’s CAR under Circular 22 was only 9.2%, very close to the minimum requirement of nine percent. However, to comply with the regulations in Circular 22/2019/TT-NHNN, the bank still needs 3.5 trillion dong in 2020 although it has applied all solutions to increase charter capital from the annual profit, bond issuance, etc.
Therefore, according to the bank’s deputy general director, if Agribank’s charter capital is not increased right in 2020, it is unable to meet the capital demand for economic development, especially the credit for agricultural sector. The growth targets of Agribank are directly influenced, thus affecting the bank’s safety in banking activities, reducing its role in the system of credit institutions. In addition, Agribank is facing the risk of being downgraded in credit rating by rating organisations.
If Agribank’s charter capital is not increased by 3.5 trillion dong in 2020, the bank will have to lower its outstanding loan growth to 4.5 five percent, equivalent to a decrease of 60 trillion dong. It means that tens of thousands of customers will not have the opportunity to access capital, not to mention that in order to support production households and businesses hit by the Covid-19 pandemic alone, Agribank must expand credit by six percent (equivalent to 100 trillion dong).
In 2020, despite being affected by the Covid-19 pandemic, climate change, etc. Agribank still strives to attain a profit of over 11 trillion dong and contribute at least 3.5 trillion dong to the State budget (not including corporate income tax), continues to be among the Top tax paying businesses in the country.
With the increase in charter capital, in 2021 and the following years, Agribank will be able to issue additional bonds to raise capital, creating the conditions for correspondingly increasing outstanding loans, and increasing revenue by 4.5 to five trillion dong. Accordingly, Agribank will increase contribution to the State budget by 900 billion to one trillion dong of corporate income tax. The remaining profit will be about one to 1.2 trillion dong.
On other hand, that will facilitate the bank to fulfil its goals under the Restructuring scheme for the period of 2016 2020 approved by the SBV, creating momentum for growth and development, improving corporate value, creating favourable conditions for the equitisation process and increasing the value of equitisation surplus.
