The State Bank of Vietnam (SBV) has just announced some basic indicators in the operation of credit institutions. Accordingly, at the end of February 2019, the Capital Adequacy ratio (CAR) of credit institutions has improved slightly to 11.80 percent. Previously, CAR of the system dropped sharply from 12.14 percent at the end of 2018 to 11.57 percent in the first month of the year.
In general, CAR of all banking sectors was enhanced compared to the end of January 2019. Specifically, CAR of state-owned commercial banks, commercial banks, joint venture and foreign banks increased from 9.31 percent, 10.56 percent and 23.53 percent to 9.42 percent, 10.76 percent and 24.67 percent respectively.
This achievement was partly thanks to the increased equity of banks compared to the end of January. In which, the commercial banks’ capital increased the most, up by 2.017 trillion dong in February to 332.024 trillion dong. However, compared to the end of 2018, the equity of this group still decreased by 6.159 trillion, equivalent to 1.82 percent.
The capital of state-owned commercial banks also increased by 425 billion dong to 271.897 trillion dong. Compared to the end of 2018, its own capital increased by 3.298 trillion dong (equivalent to an increase of 1.23 percent). Similarly, the equity of foreign joint-venture banks also climbed to 164.434 trillion dong, an increase of 2.801 trillion compared to the end of January and an increase of 1.57 trillion dong compared to the end of 2018 (equivalent to 0.96 percent increase).
However, the main reason for the improvement in CAR of banks is due to the decline in total assets. Accordingly, at the end of February, total state-owned commercial banks’ assets only reached 4.822 quadrillion dong, down 47.66 trillion dong compared to the end of January, and 41.447 trillion dong lower than the end of 2018 (equivalent to the decrease of 0.85 percent).
Assets of Joint-stock commercial banks also fell more sharply when it decreased by 77.845 trillion dong in February to 4.509 quadrillion dong. Compared to the end of 2018, their assets also dropped by 45.946 trillion dong (equivalent to 1.01 percent reduction).
Similarly, by the end of February, total assets of joint venture and foreign banks fell to 1.144 quadrillion dong, down 17.077 trillion dong compared to the end of January. However, compared with the end of 2018, assets of this sector still increased by 7.396 trillion dong (equivalent to 0.65 percent increase).
According to a banking expert, the above developments have some remarkable points. Firstly, although CAR has been improved, but it is still very low in domestic banks, especially state-owned commercial banks. With this fact, many banks in the state-owned sector will not meet the CAR requirement of eight percent according to Basel II standards.
Secondly, more worrisome is the decline in asset quality of state-owned banks. “Although the capital still increased while total assets declined slightly compared to the end of 2018, but the state-owned banks’ CAR still dropped from 9.52 percent to 9.42 percent, indicating the level of risk assets is rising, “said the expert.
This is also seen in the joint-stock commercial banks and foreign joint venture banks, although not as large as in the state-owned banks.
According to the expert, banks’ promotion for consumer loans, a large profit margin sector, also has a higher level of risk, which is the reason that the risk level of assets increases despite the profitability of the property is improved.
From January 1, 2020, banks will have to calculate CAR according to Basel II standards prescribed in Circular 41/2016/ TT-NHNN. However, only seven banks have been approved by SBV to apply Circular 41 before the effective date, including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam International Joint Stock Commercial Bank (VIB), Orient Joint Stock Commercial Bank (OCB), Military Joint Stock Commercial Bank (MB), Tien Phong Joint Stock Commercial Bank (TPBank), Asia Joint Stock Commercial Bank (ACB) and Vietnam Prosperity Joint Stock Commercial Bank (VPBank). It means that there are still 28 banks that have to race against time to meet this standard and there should be some banks that cannot meet the standards on time, because the compliance with Basel II is not simple, in which increasing capital is just a necessary condition.
Accordingly, in the Draft Circular regulating the limits and safety ratios in the operation of credit institutions (to replace the recently announced Circular 36/2014/ TT-NHNN), SBV left open the Basel II application deadline for some special cases.
