According to the report of the National Financial Supervisory Committee (NFSC), the problem of meeting the legal capital of state-owned commercial banks is very urgent now. Whether banks have now met capital requirements under Basel II standards?
Specifically, at the end of 2017, the minimum capital adequacy ratio (CAR) of the entire system was estimated at 11.1 percent (11.6 percent in 2016). The ratio of Tier 1 capital/total risky assets was adjusted at eight percent.
In 2017, the equity growth of credit organisations was slower than the growth rate of total assets. Specifically, the risk factor converted total assets swelled 9.3 percent while the equity was estimated to improve 4.6 percent.
In the coming time, to ensure the CAR following Basel II standards, the capital increase demand of credit organisations is very large, especially for state-owned commercial banks.
Nguyen Van Thang, Chair of Vietinbank said the bank’s capital increase is very urgent now. In case it fails to raise enough capital in Q1/2018, the bank’s CAR will fall below the minimum level compared to the requirement of the State Bank and Basel II. And, it will be very difficult for the credit growth to serve the economy. Currently, Vietinbank has managed many solutions such as selling state capital, maintaining ownership rate of this special shareholder at 64.5 percent.
Along with that are the restructuring of Tier 1, Tier 2 equity and the issuance of secondary bonds to raise Tier II capital, and restructuring asset portfolio. “Vietinbank is now relying on shareholders to increase capital in order to ensure the aforementioned targets”, said Thang.
Thang also proposed some measures to increase capital as follows: allowing Vietinbank to retain profit by dividends but make dividend payment by shares; supplementing chartered capital for the bank following the proposal that the bank submitted to the State Bank and the government while the government also uses other sources such as the fund on arrangement and renovation of businesses to supplement capital to the bank.
In 2018, Vietcombank targets at increasing total assets at 15-17 percent, mobilised capital at 18-20 percent, oustanding loans at 16-17 percent and lowering NPL ratio at less than two percent of the total outstanding loans. Representative of Vietcombank said the year 2018 opens up a better chance than 2017 when banking business is forecasted to continue to be positive in the context that the economy is growing at high rate, banks are aggressively raising capital to meet the Basel II standards as required by the State Bank.
Or Vietcombank has been implementing Basel II programme for many years now, and carrying out 24/37 initiatives with the target of being the pioneering bank in complying with regulations and timelines required by the State Bank.
Currently, banks have generally taken initiatives in developing capital raising methods, in which the capital increase plan of Vietcombank has been approved by the prime minister.
Can Van Luc, finance and banking expert, said that Circular No. 41, with more stringent regulations on capital flows and capital source, requiring “real cash”, will make it difficult for banks especially small ones.
The capital raising method of banks now mainly comes from three channels: retaining profits, issuing shares to existing shareholders, and issuing shares to potential shareholders. In addition, merger is also considered as one of the methods for banks to increase capital. However, this will be the last resort.
Up to now, the capital increase method that banks propose to the State Bank is still to retain profits or to make dividend payment by shares. Along with that is the usage of reserve sources to increase capital and issue more shares.
According to experts, the reality has proved that Basel II standards are optimal measures for commercial banks to stand firm against unpredictable changes of the financial market. For Basel II, every risk must be quantified by specific figures and this figure will indicate how much capital do banks need to offset risks. Therefore, the year 2018 will be the hinge year so that commercial banks have clear roadmap to meet requirements on standards following the regulations of the State Bank and Basel II standards.
Nguyen Hoang Phuong, Head of Analysis Department of HCM City Securities Company (HSC) said bank shares have risen sharply since the beginning of this year, and have led the market thanks to business results, in which most banks recorded 2017 profits to double year-on-year. However, Phuong said the excessive price increase of this group of stocks is a risk for investors because profit has been reflected in share prices.
