Prosperous business performance and a positive trend of bank shares in the stock market will help some commercial banks meet capital increase deadline required by the State Bank of Vietnam (SBV).
According to the National Financial Supervisory Commission (NFSC), many banks are under great pressure for capital hike to satisfy the SBV’s regulations on meeting Basel II standards by the end of 2020.
Under SBV’s Circular No. 41/2016/TT-NHNN, banks must maintain a capital adequacy ratio (CAR) of at least 8 percent as Basel II norms, starting in 2020. With the new regulation, which will replace Circular 13/2010/TT-NHNN, CAR of many banks would go below the minimum level stipulated by the SBV if they failed to increase capital.
CAR is expressed as a percentage of the bank’s capital to its risk-weighted assets and is one of the main metrics used to promote the stability and efficiency of financial systems.
According to the NFSC’s report, the average CAR of the banking sector has been consistently falling since 2017.
It had dropped from 11.6 percent at the end of 2016 to 11.1 percent at the end of last year. The ratio continued to go further down by 0.25 percentage points to 10.85 percent by the end of February 2018, of which, the indicator of state-owned commercial banks decreased by 0.16 percent and that of joint stock commercial banks reduced by 0.44 percent.
Analysts say this is because banks’ assets have grown much more rapidly than their equity.
In 2016 the sector’s total assets went up by 16 per cent but charter capital by only 6.11 percent.
In 2017, all big state-owned commercial banks including VietinBank, Vietcombank and BIDV had total assets exceeding VND1 quadrillion after rising by 9.3 percent while their equity grew by only 4.6 percent.
Experts warn that when Basel II standards are applied, banks’ CAR will plunge due to an increase in the quantum of their risky assets.
Meanwhile, the group of State-owned banks have average CAR of 9.69 percent, close to the stipulated minimum. It will plunge below 8 percent when Basel II standards come into effect.
Therefore, many banks planned to increase their charter capital in the past years. For example, BIDV expected to increase their capital by $413 billion up to $1.9 billion.
Many small banks also planned to raise charter capital. OCB set to grow up to $328 million, an increase of 50 percent or Nam A Bank wished to increase their capital by 70 percent up to $219 million.
Despite great efforts to increase capital to meet Basel II standards in the past few years, many banks had failed due to the volatility of the stock market.
However, the situation has changed this year when the stock markets have surged significantly, which can help bank raise charter capital through share sales and dividend payout by shares, according to NFSC.
To capitalise on the growth of the stock markets, many banks have rushed to issue shares for capital increase.
Military Bank and VPBank, for example, recently received the SBV’s approval to raise its charter capital, the move being considered as necessity to satisfy with standards of Basel II and increase their competitiveness.
Accordingly, VPBank will increase its charter capital from VND15.7 trillion (US$690 million) to VND25.299 trillion ($1.111 billion). Meanwhile, MB’s capital base will be also raised from VND18.15 trillion ($799.56 million) to VND21.6 trillion ($951.5 million).
