Banks are urgently upgrading and completing databases, information technology infrastructure, human resources, etc. to serve the capital calculation in accordance with Circular 41 and to carry out the Basel II.
According to Circular 41/2016/TT-NHNN (Circular 41), banks and foreign bank branches must regularly maintain the Capital Adequacy Ratio (CAR) at eight percent, very close to the Basel II standards. The circular takes effect from January 1st 2020. Accordingly, commercial banks should carry out numerous measures to enhance their financial capacity to comply with the prescribed CAR limit.
Specifically, banks have plans to increase equity by measures including issuing additional shares, distributing dividends in shares, issuing bonds to raise Tier-2 capital, and other forms of capital increase; adjusting business strategies based on effective allocation of capital and reasonably adjusting the structure of total risk-weighted assets, such as increasing the proportion of assets with low risk factors (expand lending to businesses/products or sectors with low risks and high safety, etc., lowering the proportion of assets with high risk factors (reduce lending to securities trading, lending to subsidiaries and affiliated companies, etc.).
Up to now, nine banks including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam International Commercial Joint Stock Bank (VIB), Orient Commercial Joint Stock Bank (OCB), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Military Commercial Joint Stock Bank (MBBank), Asia Commercial Joint Stock Bank (ACB), Tien Phong Commercial Joint Stock Bank (TPBank), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), and Maritime Commercial Joint Stock Bank (MSB) have decided to carry out Circular 41 ahead of time.
Talking to Dau tu Chung khoan, a leader of the State Bank of Vietnam (SBV)’s Banking Supervision Agency said that the SBV is considering the possibility to allow early application of Circular 41 for four other banks including Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), HCM City Development Commercial Joint Stock Bank (HDBank) and Vietnam Thuong Tin Commercial Joint Stock Bank (Vietbank). At the same time, the SBV is aware that some foreign banks will submit documents for early application of Circular 41.
On March 6th 2019, the Banking Supervision Agency issued an official document requesting banks and foreign bank branches to assess the status and report the ability of complying with Circular 41. As a result, most banks and foreign bank branches have prepared for the implementation of Circular 41 (except for some banks which are under control or in the process of restructuring).
Making efforts with Basel II for long-term goals
Talking to reporter, a senior leader of VPBank said that Basel II is an international set of standards not only about risk quantification through indicators and models but also about the completion of the risk management organisation, improvement of risk policies, enhancement of risk prevention culture, and increase of market transparency.
Complying with Basel II means that the bank is acknowledged to meet higher risk management principles and operate safer and more sustainable.
The bigger benefit that banks have when fully complying with Basel II is to apply those standards to business operations in parallel with risk management model. For example, VPBank in the last four years has always been in the group of banks with the largest revenue and profit in the system.
The bank’s consolidated Cost to Income Ratio (CIR) as of June 30th 2019 was 35.8 percent, down by nearly two percent over the first quarter of 2019 and was at low level compared to the entire system. VPBank’s revenue on total assets reached 9.7 percenta competitive level in the current market. The Net Interest Margin (NIM), Return on Equity (ROE) and Return on Asset (ROA) of VPBank remained high at respectively 9.4 percent, 19 percent and 2.1 percent”.
General director of TPBank Nguyen Hung shared that when meeting Basel II standards, TPBank has more advantages in implementing new business models, bringing more benefits to customers.
For MSB, the recognition of Basel II application has a great meaning after it had overcome a difficult period, because meeting the Basel II standards also means that MSB is recognised as a safe, efficient and transparent bank operating under higher risk management rules, according to international standards, helping MSB enhance its position and competitiveness in the market.
Han Ngoc Vu, general director of VIB said that the application of Basel II at banks is primarily for the benefits of each bank due to its usefulness of this standard in risk management and operational quality, in creating confidence for depositors in particular and customers in general as well as for investors, state management agencies; and then to build reputation and brand of each bank.”
Immediate interests
Sharing with Dau tu Chung khoan, a senior leader of the SBV said that it is not correct when banks said that the control of credit limit ceiling creates an ask-give mechanism.
“Currently, everything is transparent. The classification of credit institutions complies with Circular 52/2018/TT-NHNN, and then credit limits are assigned based on the classification results. Specifically, a 13 percent limit is assigned for class-A banks, 10 percent for class-B banks and seven-percent limit is for class-C banks. There are clear calculation principles and no exceptions,” said the leader.
The SBV’s leader also said that under the orientation of this agency, banks that have implemented the regulations on Capital Adequacy Ratio (CAR) in Circular 41 before the deadline will be prioritised for higher credit growth limits than other banks. Specifically, the limit will be 1.7 times higher than the normal level.
“The increase can only be applied for some clear cases and the adjustment targets are based on clear conditions,” he added.
On the banks’ side, although Vietcombank’s outstanding loans in the first half (H1) of 2019 reached nearly 10 percent, when being asked whether the bank would apply for credit growth room expansion in the last months of the year, Vietcombank’s Chair of the Board of directors (BOD) Nghiem Xuan Thanh said that the 15 percent credit growth limit assigned for Vietcombank is reasonable to both ensure capital support for the economy and control risks. In the case when the macroeconomic developments are positive until the end of the year, and if possible, Vietcombank will apply for credit growth room adjustment later.
VPBank’s report announcing business results by the end of the second quarter of 2019 showed that the bank’s credit growth was 11.6 percent while the limit assigned at the beginning of the year was 12 percent. However, VPBank has been approved by the SBV to increase credit growth target from 12 percent to 16 percent.
By the end of June 30th 2019, the outstanding loans to customers of Techcombank grew by 16 percent and the bank’s credit growth room has also been raised from 13 percent to 17 percent. The situation is similar at MB and ACB.
For OCB, the bank’s outstanding loans by June 30th 2019 increased by 20 percent over the beginning of the year, reaching the assigned limit. In fact, from the beginning of the year, the bank had proposed the SBV to extend its credit growth limit to 30 percent.
HDBank has announced its business results in the second quarter and in H1 2019, in which the bank’s total outstanding credit rose by 15.3 percent while its credit growth target was set at 24 percent in 2019.
TPBank’s credit growth in H1 2019 was 13 percent, which means that the bank has used up all the assigned credit growth room. Meanwhile, it targets to achieve an outstanding credit of 101 trillion dong this year, equivalent to a more than 24 percent increase.
VIB also recorded a high retail lending growth in H1 2019 of 21 percent, while its credit growth target is 35 percent. The bank has proposed the SBV to expand the credit growth room.
“Both VIB and TPBank were in the group of banks with the highest credit growth rates in H1 2019. However, the pressure of rising credit of these two banks in the second half of 2019 is forecasted to not be significant because they have been recognised by the SBV to meet Basel II, and the possibility to be granted larger credit growth room is high. Thus, it is easy to understand banks’ race to get the SBV’s recognition of meeting Circular 41 early, with a reward of being approved for higher credit growth limit,” said a general director of a commercial bank based in the South.
