The capital adequacy ratio (CAR) of the banking system as of end-2017 was 11.1%, down from 11.6 percent in end-2016, according to a recent report of the National Financial Supervisory Commission (NFSC).
Commercial joint stock banks had an average rate of 11.2 percent while that of State-run banks was estimated at 9.96%, approaching the dangerous level of 9%.
CAR is an important indicator of the health of credit institutions and the banking system as a whole. It is still calculated with the method determined by the State Bank of Vietnam (SBV), not in accordance with the Basel Capital Accord II (Basel II) standards.
According to Circular 41/2016, the CAR calculation in Vietnam will be in line with Basel II standards from 2020 onwards.
Basel II standards, with more stringent capital definitions as well as liquidity and leverage restrictions, will result in lower CAR compared to SBV’s current method. It is estimated the average CAR of State-run banks shall drop to below 8 percent under Basel II standards.
Basel II standards are pressuring banks in Vietnam to increase their chartered capital. Capital increase should be complete before the new CAR calculation based on Basel II standards becomes effective in 2020.
According to data of SBV, as of August 2017, the banking system’s chartered capital totalled VND505.26 trillion. Total chartered capital of State-run commercial banks saw a mere 0.79 percent increase compared to end-2016, estimated at VND147.7 trillion.
Up to now, the Commercial Bank for Foreign Trade of Vietnam (Vietcombank) is the only institution among Vietnam’s four largest banks (Big Four) that had its capital increase plan approved by the prime minister, according to Lao Dong newspaper.
The capital increase plan of the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), another member of the Big Four, was submitted to the government last year but it has not been approved.
Some large joint stock banks have been successful in increasing their chartered capital. After two capital hikes, HDBank’s chartered capital has reached VND8.83 trillion. Military Bank has added VND1,000 billion to raise chartered capital to nearly VND18.2 trillion. Other names include VPBank, ACB and TPBank.
On the other hand, small commercial joint stock banks, such as BaoVietBank, Saigonbank, VietABank, VietCapital Bank and KienlongBank, have not revised up their chartered capital.
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