BIDV’s deal with KEB Hana Bank
The banking industry in 2019 marked the sale of stake of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), the race on technology and Basel II standards. Many policies and actions of the State Bank of Vietnam (SBV) have been launched.
In November, BIDV completed the offer of 15 percent stake to KEB Hana Bank, net collecting more than 20.2 trillion dong. It was the biggest deal in 2019. The bank’s charter capital after the issuance increased to 40.220 trillion dong.
After three consecutive years of submitting the capital raising plan, BIDV has successfully complete the plan to supplement resources in order to meet the conditions of Circular 41/2016 stipulating the minimum Capital Adequacy Ratio (CAR) of credit institutions. The bank was approved by the SBV to apply Basel II from December 1st 2019. The presence of KEB Hana Bank in BIDV is expected to help the bank carry out restructuring and restructure lending portfolio, focusing on retail, small and medium enterprises (SMEs), along with risk control.
Application of Basel II standards
In 2019, 18 banks have met Basel II standards, including two foreign banks (Shinhan Vietnam and Standard Chartered Vietnam) and 16 domestic banks. Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) and Vietnam International Commercial Joint Stock Bank (VIB) were the first two banks to be approved to apply Basel II, followed by Orient Commercial Joint Stock Bank (OCB), Asia Commercial Joint Stock Bank (ACB), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Military Commercial Joint Stock Bank (MB), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Maritime Commercial Joint Stock Bank (Maritime Bank), HCM City Development Commercial Joint Stock Bank (HDBank), Tien Phong Commercial Joint Stock Bank (TPBank), Southeast Asia Commercial Joint Stock Bank (SeABank), Viet Capital Commercial Joint Stock Bank (VietCapitalBank), Vietnam Thuong Tin Commercial Joint Stock Bank (VietBank), Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank), Nam A Commercial Joint Stock Bank (NamABank), and most recently BIDV.
In the list of banks piloting Circular 41/2016 (deadline is 2019), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) have not completed the goal.
Chair of VietinBank Le Duc Tho has repeatedly mentioned that raising capital is an urgent issue of the bank in order to meet Basel II standards. Its shareholder Tokyo Mitsubishi UFJ (Japanese shareholder holding nearly 20 percent of the bank’s stake) once expressed its desire to support VietinBank in carrying out the capital raising plan, but could not do it. The SBV currently holds 64.46 percent of VietinBank’s capital, lower than the minimum limit of 65 percent according to the government’s policy. This makes the plan to offer additional capital to foreign investors comes to a deadlock. According to the roadmap to 2021, the state ownership in VietinBank may fall to 51%.
Sacombank has not yet made any moves about the Basel II application.
No new bank was listed.
In 2017 and 2018, many large banks listed their stocks on the stock exchanges such as VPBank, Techcombank, TPBank, and HDBank. However, by 2019, no more bank has been listed. VietBank was the only bank to trade shares on the Unlisted Public Company Market (UPCoM).
Most recently, Maritime Bank has submitted documents to list shares on the HCM Stock Exchange (HoSE). Meanwhile, VietCapitalBank has also been granted a certificate of registration by the Vietnam Securities Depository with the code BVB.
At the request of the prime ministers, all joint stock commercial banks are required to list or register their share trading by 2020. Many banks have made listing plans in the past few years such as OCB, SeABank, and An Binh Commercial Joint Stock Bank (ABBank), etc., but no specific moves have been made.
Dong A Commercial Joint Stock Bank (DongABank) held shareholders meeting after many years
After four years being under special control, DongABank held a shareholders meeting and submitted a plan to issue 3.35 billion shares to increase charter capital but it was not approved. The bank will have to consider and submit another plan to restructure.
By the end of 2018, DongABank recorded accumulated losses and negative equity. Therefore, to ensure the real value of the minimum charter capital of three trillion dong, the bank needs to supplement capital as prescribed.
DongABank has been put under special control since August 2015, after the inspection results showed that before 2012, the bank had many violations of law on financial management, credit granting and other business activities, which seriously affected its financial situation.
The SBV announced the roadmap for tightening short-term funds used for medium and long-term loans.
According to the SBV’s roadmap, the ratio of short-term funds used for medium and long-term lending at credit institutions will be gradually reduced from the current 40 percent to 30 percent in three years. From October 1st 2020 to September 30th 2021, this ratio is 37%, from October 1st 2021 to September 30th 2022, this ratio is 34%, and after October 1st 2022, this ratio is 30%.
The SBV stated that tightening the use of short-term funds for medium and long-term lending will help step by step control liquidity risk, ensure safety in banking operations against internal and external changes, stabilise and promote economic development.
The SBV’s deputy Governor Dao Minh Tu once shared that 50 percent of the medium and long-term capital for the economy depends on banks. That creates great risks and pressure on the credit institution system. Therefore, the SBV’s leader said that it is necessary to gradually reduce the dependence on bank credit, particularly the needs for medium and long-term capital by developing other capital mobilisation channels such as the stock market.
Consumer finance tightening with Circular 18
In Circular 18/2019, the SBV set a roadmap to reduce the proportion of debit balance directly disbursed to customers in finance companies compared to the total outstanding consumer credit. This ratio is 70 percent from January 1st 2021 to December 31st 2021, 60 percent from January 1st 2022 to December 31st 2022, 50 percent from January 1st 2023 to December 31st 2023, and 30 percent after January 1st 2024.
Finance companies will have time to restructure their loan portfolio, avoiding sudden impact on net interest margin and profit. FE Credit is the most affected unit. The company has a large proportion of cash loans of 76%, followed by credit card loans with 11.4%, motorbike loans with eight percent, and electronics loans of 4.7%.
Operating interest rate cut after more than two years, ceiling deposit rate cut after five years
In September 2019, the SBV lowered operating rates for the first time since 2017. The refinancing rate declined from 6.25 percent to six percent, while rediscount rate fell from 4.25 percent to four percent per annum. This happened in the context when many central banks of countries made similar moves, including the US Federal Reserve (Fed), European Central Bank (ECB), etc.
In November 2019, the SBV announced to cut the deposit rate ceiling for the first time since October 2014. The rate for terms of less than one month decreased from one percent to 0.8 percent per annum, while the rate for terms from one month to less than six months fell from 5.5 percent to five percent per annum.
Saigon Securities Incorporation Research centre (SSI Research) stated that this adjustment aims at the target to reduce lending rates by at least 0.5 percentage point in 2020 that the prime minister made before the National Assembly.
The dong is stable against US dollar despite global fluctuations
In 2019, many key currencies fluctuated sharply. Some currencies depreciated by eight to 11 percent (such as Korean Won (KWR) and Swedish Krona (SEK)), while some appreciated by five to seven percent such as Russian Ruble (RUB) and Thai Baht (THB) against US dollar. dong is among a few currencies with stable exchange rate against the greenback. From the beginning of the year, dong once created a wave from the end of April to the end of May, but the buying rate of banks at the peak of the wave only increased by 0.84 percentage point compared to the end of 2018, reaching 23,360 dong per US dollar, then cooled down.
At the time of great and sudden pressure due to the US dollar/Chinese yuan exchange rate exceeding seven and Chinese yuan depreciation of nearly four percent in August, the dong still moved sideways and even fell sometime.
The digital banking race and fintechs
Banks have promoted the improvement and application of the 4.0 technology revolution in operation and credit activities. The conversion of chip cards combined with the development of mobile applications with direction to cashless payment have been boosted.
The technology boom has led to the development of fintech companies in financial sector such as intermediaries, online loans, etc. Many electronic wallets (e-wallets) have been launched, such as Smartnet, Moca, PAYTECH, Monpay, MoMo, Zalopay, etc. As of August 2019, five e-wallets including Payoo, MoMo, SenPay, Moca and Airpay accounted for 80 percent of payment market share.
The Peer to peer lending (P2P Lending) model has also flourished with websites such as Vaymuon.vn, Fiin, etc. However, the fast development of P2P Lending while there is not yet a legal framework poses risks to borrowers, lenders and domestic companies due to the penetration on foreign companies. The SBV is in the process of building and completing the draft on P2P Lending in Vietnam. The agency has collected opinions on mobile money, cashless payment, e-wallets, etc.
In early November, the SBV announced to take comments on the decree on cashless payment. In particular, the draft limits the foreign ownership rate at intermediaries at 49%, including both direct and indirect ownership. If the fintech company operates in different sectors with different regulations on foreign ownership, the foreign ownership rate will not exceed the lowest level.
Payment fintech companies which are licensed before the effective date of the decree and have foreign ownership of more than 49 percent will be maintained until there is a change of foreign investor or the until the license expires.
The draft also regulates that mobile money is a form of e-money issued by telecoms businesses that are licensed to provide intermediary payment services and identify customers via their mobile subscriber databases. After being licensed by the SBV with mobile money, Vietnamese mobile subscribers can participate in e-payment.
