The due time for application of Basel II standards of bank is very close (in 2020), while the capital increase is still a very difficult issue for large joint stock banks with State capital.
Cannot increase credit due to Credit Adequacy Ratio (CAR) limit
Chair of Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank), Le Duc Tho said that the capital increase is particularly urgent, so the bank proposes for dividends payment in shares for the year of 2017 to 2020. According to Tho, since VietinBank’s CAR has reached the minimum level, from September 2018 until now, this bank cannot grow credit.
Credit of VietinBank for the whole year of 2018 only increased by 6.1 percent, and particularly in the fourth quarter of 2018, it decreased by more than 26 trillion dong because of no increase in capital. It is also one of the reasons for this bank to adjust its business targets and reduce profit targets in the last month of fiscal year 2018.
In order for VietinBank to continue developing and promoting the role of a key bank in the banking system in the coming years, Tho proposed to the prime minister and the Governor of SBV many solutions, including capital raising.
Tho said the bank has developed a plan to increase capital and reported to the government via SBV. Currently, VietinBank’s CAR has fallen to the minimum level, while measures to increase equity (including Tier-1 capital and Tier-2 capital) have been exploited to the maximum due to the provisions of law.
Meanwhile, Phan Duc Tu, Chair of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), made some proposals to the government and SBV.
Firstly, he proposed to develop the stock market as a major long-term capital channel of the economy to meet the needs of investment capital for production and business of businesses, sharing about long-term capital pressure with the banking system.
Secondly, there are measures to increase chartered capital for banks. Particularly for BIDV, first of all, it is recommended to remove the conditions binding foreign investors so that BIDV can complete the capital sale transaction as soon as possible.
Pay dividends by shares to increase capital
In order to expand credit growth, banks want to pay dividends by shares to raise capital this year. VietinBank wants to be approved with the plan to increase charter capital as presented.
In the short term, VietinBank proposed to pay dividends by shares for the years from 2017 to 2020 and allocate capital to increase chartered capital, and at the same time allow the distribution of profits according to the principle: if CAR ratio fails to ensure credit growth to serve economic growth according to the government’s objectives, VietinBank can retain its profits to raise capital or pay dividends by shares; dividend payment in cash is only done when the banks can guarantee CAR in accordance with the law.
Meanwhile, Nghiem Xuan Thanh, Chair of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) said, this bank has completed private placement issuance for GIC (Singapore) and Mizuho (Japan) with a total value of 6.2 trillion dong. GIC and Mizuho’s investment has increased Vietcombank’s chartered capital to 37.1 trillion ($ 1.6 billion) and created a solid capital base for meeting capital safety requirements according to Basel II standards.
According to a financial and banking expert, the reason for the increase in capital of large banks is because these banks have dominant shares of SBV. Banks with State capital must comply with more management regulations than private banks, especially those related to profit distribution. If private banks can easily be agreed by shareholders to pay dividends by shares, then banks with State capital will not.
Moreover, the limit on State ownership in these banks (at least 65 percent) also makes it difficult to call foreign capital to raise capital. In addition, the regulations that do not allow shareholder to sell capital at price less than market prices also a big issue for the managers of these banks.
