Many experts suggested that the state should consider raising capital for state-owned commercial banks if they want these banks to maintain their leading position in the local monetary market and reach out to the region.
Under the provisions of Circular 41/2016/ TT-NHNN, from January 1, 2020, banks must ensure the capital adequacy ratio (CAR) of eight percent, but the requirements are much more stringent according the Basel II standards. Specifically, Circular 41 requires banks to have ‘sufficient capital’ to handle both operational risks and market risks, rather than just credit risks.
Therefore, experts believe that, when calculating according to the provisions of Circular 41, the banking system’s CAR will be much lower and banks with CAR close to the minimum threshold of nine percent will unlikely meet minimum capital requirements according to new standards.
Therefore, over the past year, banks have been working hard to improve their CAR by raising tier one capital and tier two capital. At the same time, banks are also more cautious with increasing the scale of total assets.
Accordingly, total assets of the whole system in 2017 increased by 17.62 percent, and equity and charter capital increased by 11.64 percent and 4.91 percent, respectively. In 2018, the correlation has changed. In the past year, the total assets of the whole system only increased by 10.62 percent (to 11.064 quadrillion dong), the equity increased to 12.89 percent (to 806.16 trillion dong), and the charter capital increased by 12.47 percent (up to 576.34 trillion dong).
However, the curve of increasing capital of each bank sector is also very different. For state-owned commercial banks, the increase of charter capital (tier one capital) faces many difficulties due to the disapproval of state shareholders. Accordingly, in the past year, the charter capital of this sector only inched up 0.08 percent to 147.89 trillion dong. In this context, the solution chosen by state-owned banks is to issue bonds to raise capital at tier two. Thus, their own capital also increased by 5.48 percent in the last year to 268.6 trillion dong.
In the past year, Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) has mobilised a total of 1.01 trillion dong through issuing bonds to raise tier two capital. Another example is Vietnam Bank for Agriculture and Rural Development (Agribank). The bank has mobilised four trillion dong through issuing bonds in the last months of the year.
Meanwhile, commercial banks have increased their capital through stock dividends. Many banks have successfully increased their capital using this method in the past year. The most impressive case is Vietnam Technological and Commercial Joint Stock Bank (Techcombank), which has increased its charter capital up to three times to nearly 35 trillion dong. Other examples are Vietnam Prosperity Joint Stock Commercial Bank (VPBank) increasing its charter capital by 10.5 trillion dong to 25.3 trillion dong; Military Joint Stock Commercial Bank (MB) increasing its chartered capital by over 3.4 trillion dong to 21.6 trillion dong. In the past year, the charter capital of joint stock banks increased by 52.44 trillion dong to 267.23 trillion dong, equivalent to an increase of 24.42 percent; their total equity increased by 47.56 trillion dong to 338.18 trillion dong, equivalent to an increase of 16.36 percent.
However, the banks’ efforts did not achieve the desired results when the system’s CAR last year still dropped to 12.14 percent from 12.23 percent of the previous year. CAR of joint stock banks decreased from 11.47 percent to 11.24 percent.
Explaining this result, a banking expert reasoned that it was due to higher levels of risk in the assets of the joint stock banks because these banks often focused on pushing capital into sectors that are more profitable but also riskier.
For state-owned commercial banks, although there have been many improvements in the last months of the year, CAR of this sector still remained at 9.52 percent as at the end of 2017, and much lower than 9.92 percent of early 2017.
However, the banking expert warned a noteworthy fact that the tier two capital obtained by the state-owned commercial banks through bond issuance is unsustainable. Meanwhile, despite big profits last year, state-owned commercial banks could not use their profits to raise capital without approval of the state shareholders. Thus, state-owned banks’ CARs are still close to the ‘red line’. Among them, Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) cannot even meet the new standard CAR.
Le Duc Tho, Chair of the Board of directors of this bank, said that its CAR has dropped to the minimum level in the context that the bank has fully exploited measures to increase equity (both tier one capital and tier two capital). ). Therefore, from September 2018 to now, VietinBank cannot increase credit. This has directly affected bank profits and limited the ability to supply capital to the economy.
“The role of state-owned commercial banks is immense. They are not only tools for the government and the State Bank of Vietnam (SBV) to regulate monetary policy and the market but also help carry out policy credit programmes for social security purposes. Furthermore, the government’s goal to have two to three commercial banks in the top 100 largest banks in total assets must depend on the state-owned commercial banks,’ stressed the expert. Allowing state-owned commercial banks to retain dividends to raise capital may affect the state budget, but sacrificing immediate benefits for long-term benefits is a must.
However, allowing state-owned commercial banks to retain dividends to raise capital will slow the equitisation and divestment of state capital at state-owned commercial banks. Therefore, allowing commercial banks with state capital to retain profits combined with replacing the state capital by capital from local and foreign investors will be an effective solution.
