Strengthening the financial capacity of state-owned commercial banks, ensuring strict compliance with the regulations on prudential ratios, and meeting the capital adequacy level under Basel II capital standards was an urgent requirement.
In the report sent to the National Assembly deputies, the State Bank of Vietnam (SBV) once again proposed the government to offer the National Assembly to amend Resolution No. 25/2016/QH14, Resolution No. 26/2016/QH14, Resolution No. 1023/NQ-UBTVQH13, as well as issue a new resolution in the direction of using the state budget to increase charter capital for state-owned commercial banks.
Banks need a stronger foundation
Over the past week, SBV had approved to amend the chartered capital stated in a license for a series of banks. For example, Vietnam International Commercial Joint Stock Bank (VIB) raised its charter capital from 7.835 trillion dong to 9.245 trillion dong. Orient Commercial Joint Stock Bank (OCB) raised its charter capital from 6.599 trillion dong to 7.899 trillion dong. The capital was more than 8.881 trillion dong in case of Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank). Nam A Commercial Joint Stock Bank (NamABank) increased its capital from over 3.353 trillion dong to over 3.89 trillion dong.
According to experts, the upcoming application of Circular 41/2016/TT-NHNN could be considered as a driving force for the mass increase of banks’ capital. Not only had banks not fully met the requirements of Circular 41 to promote capital increase, but even banks having entirely applied before the deadline of Circular 41 still had to make efforts to increase capital, such as VIB, OCB. Basel II regulations required banks to have firm cushioning to withstand external shocks.
Le Xuan Nghia said that, in addition to raising the scale of total assets to expand operations, banks applying Basel II standards would continue to increase charter capital to create buffers to handle bad debts. In promoting economic growth generally, the banking system notably, a large bank played an important role, primarily focusing on state-owned commercial banks like Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), the expert thought.
Report on the operation of the system of credit institutions of SBV to the National Assembly updated, until the end of August 2019, the charter capital of four banks including Vietnam Bank for Agriculture and Rural Development (Agribank), Vietcombank, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) reached 139 trillion dong, an increase of 0.8 percent compared to the end of 2018. The total assets reached 5.081 trillion dong, an increase of 5.29 percent compared to the end of 2018, accounting for 43.01 percent of the whole system. The market one loan reached 3.652 trillion dong, accounting for 47.9 percent of the entire system.
However, the credit expansion of state-owned commercial banks was still limited because banks had to meet the capital adequacy ratio while the bank’s charter capital growth was slow, especially for Agribank and VietinBank. Therefore, it was an urgent requirement to strengthen financial capacity for state-owned commercial banks, ensure strict compliance with the regulations on prudential ratios, and to meet the capital adequacy level under Basel II capital standards.
With this goal, SBV was coordinating with the Ministry of Finance to handle capital raising issues for state-owned commercial banks under the prime minister’s direction. Also, SBV focused on directing Agribank and related units to research and solve difficulties and obstacles to accelerate Agribank’s equitisation.
The enhancement of financial capacity through SBV’s increasing the chartered capital to ensure the leading role of these four banks in the financial and monetary market had encountered many difficulties. The total amount of capital needed to invest and supplement to the State-owned commercial banks was quite significant to ensure meeting the minimum capital adequacy requirements under Basel II. While the State resources that could be used to increase capital for these banks were also minimal, based on the report mentioning some difficulties for State-owned commercial banks, which were slow to raise capital.
Allow using the budget to increase capital
In the report sent to the National Assembly deputies, SBV once again proposed the government to offer the National Assembly to amend Resolution No. 25/2016/QH14, Resolution No. 26/2016/QH14, Resolution No. 1023/NQ-UBTVQH13, as well as to issue a new resolution in the direction of using the state budget to increase charter capital for state-owned commercial banks.
Not until then did the SBV mention the issue of raising capital for state-owned commercial banks. During the mid-year session of the National Assembly, the executive agency proposed raising capital. Because of the urgency of raising capital related to the safety of the operation of the credit institution system, ensuring that the blood vessels for the economy would be smooth. Thus, at this session, SBV kept persisting in restating the permission to use the state budget to increase charter capital for state-owned commercial banks.
In the current context, experts said that raising capital for state-owned commercial banks was urgent and should not be delayed. Because the four State-owned commercial banks with more than 50 percent of charter capital held by the State continued to play a leading role in the system of credit institutions. The SBV options mentioned above were considered to be quite suitable in practice.
Among the options proposed by SBV, Bui Quang Tin found that the plan of issuing a separate Resolution in the direction of allowing the use of state budget to increase charter capital for state-owned commercial banks was the most feasible.
Tin identified, although all of the above options were carefully measured by SBV and were aimed at using state budget capital to increase capital. However, he thought that because amending a Resolution had to face many issues so that the agencies would take more time. Priority should be given to the optimal solution to adopt this policy as soon as possible.
In general views, Le Xuan Nghia also inclined to the plan of issuing a new Resolution. Although it was necessary to consult the related ministries, the time for passing a Resolution was faster than asking for amendments of many Resolutions.
Regarding the mechanism of using the state budget to increase capital, according to this expert, it was not advisable to rake in capital allocation, but it should be based on banks’ profit. For example, banks with high profits would prioritise increasing capital, while banks with small profit would not be allowed to increase capital evenly. With this form of ensuring market principles, fair reward and punishment, there would be no favour for any bank. On the other hand, this would create favourable conditions for banks to develop quickly with high profits and efficient business, Nghia said.
In case of low-profit banks, the government still wanted to prioritise policy. According to a member of the National Monetary and Financial Policy Advisory Council, the government should issue more government bonds and mobilise people’s capital to have budget to increase capital for these commercial banks like the quantitative easing packages (QE1, QE2) of the US.
However, banks in such a situation also had limited capital increase to discourage state-owned banks from operating inefficiently, according to Nghia.
