Raising capital is an urgent need of state-owned commercial banks because if they fail to do so, the capital supply to the economy will surely decline and some banks will even have to narrow down their credit scale.
At the regular government press meeting in April, once again the issue of increasing capital for four state-owned banks including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) and Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank) was raised.
The proposal to use the 2018 dividends to increase capital for banks, instead of being mentioned by commercial banks as before, has been raised by the SBV. It means that the SBV is also urgent with the increase of the Big 4 banks.
According to experts, it is understandable because the Big 4 banks not only play the leading role in the monetary market and are the SBV’s tool to carry out policies, this group of banks is also the major capital supply channel of the country’s major projects or credit programmes carried out under the direction of the government and the SBV. However, after many years of maintaining high credit growth, the Capital Adequacy Ratio (CAR) of these banks fell close to the minimum limit of nine percent. If failing to increase capital, these banks will not be able to maintaining the capital supply to the economy.
In fact, the capital increase of these banks has become urgent since 2016, when the Ministry of Finance rejected the plans to pay dividends in shares and requested to pay cash to the State budget. Since then, only Vietcombank has managed to increase capital by selling three percent of stake to foreign investors in the end of 2018.
A little easier case is perhaps BIDV, as the bank’s state ownership is currently 95.28 percent and it still has room to partly sell the state capital, especially to foreign investors. In fact, BIDV is also in the process of offering stake to KEB Hana Bank at an expected ratio of 17.65 percent. However, no new information has been released until now.
The most difficult case is VietinBank, as its CAR is currently very close to the minimum limit prescribed by the law; while the measures to increase equity (including both Tier-1 and Tier-2 capital) have been exploited to the fullest and reached the prescribed limits. In particular, the room for foreign investors at VietinBank has also reached the ceiling limit.
For that reason, at the conference on implementing the tasks in 2019 as well as the recent Annual general Meeting (AGM), these three big banks proposed to retain dividends to increase their capital in order to continue to develop and promote their major role in the system.
So far, the SBV is still waiting because there has been no comment from relevant agencies, especially the Ministry of Finance. As the capital has not been increased, these three big banks are hesitant in strongly expand credit.
In fact, only Vietcombank maintained fairly high credit growth of 6.55 percent in Q1 2019 because the bank managed to increase its capital to 37.089 trillion dong. However, the bank also set a modest growth target of 15 percent for the whole year 2019.
Meanwhile, the Q1 credit growth of BIDV was only 3.61 percenta fairly low level in the system, partly due to the reason that BIDV is having the largest total assets in the system but its charter capital is the lowest among three equitised state-owned banks, reaching only about 34.2 trillion dong.
VietinBank even recorded negative credit growth rate of 0.44 percent in Q1. This is the second consecutive quarter VietinBank had to narrow down its scale of lending as its CAR is very close to the minimum limit.
That fact has more or less shown the urgent need to increase capital for state-owned banks. For VietinBank, even when the bank is allowed to retain all profits in 2017 and 2018 to increase capital, it sets very modest business targets this year with total asset growth target of two to five percent and credit growth target of six to seven percent.
That will certainly affect the credit access of businesses as warned by Le Duc Tho: “If VietinBank cannot expand credit, it will greatly affect the capital supply to the economy and the participation in funding for important projects of the country, thereby greatly influencing the economic growth and the state budget revenue because businesses face difficulties in accessing credit.
