In the first half of 2019, the issue of increasing charter capital for four large commercial banks (including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Bank for Agriculture and Rural Development (Agribank))was hotter when the management agencies and leaders of these banks all spoke about using the profit from state capital at banks to increase charter capital. The goal is to overcome the capital adequacy ratio (CAR) limit of less than nine percent.
However, the proposal of the State Bank of Vietnam (SBV) and these banks has not received the consensus of many relevant agencies, as well as created a lot of concerns for society, experts, because the proposed basis was not really solid and lacked a comprehensive approach.
Need more suitable solutions
First of all, SBV should not propose a general solution to allow all four banks to keep the state capital in banks, or pay by shares instead of cash to increase chartered capital, since each bank has very different characteristics. Accordingly, there should be many plans to increase chartered capital (if necessary), as well as many development strategies and restructuring projects suitable to each bank. In other words, there cannot be a common solution for many different problems.
Retaining dividends or profits from the state capital at banks to increase chartered capital not only violates capital safety principles under current regulations, but also affects the ability to carry out Basel II standards in the next years.
In fact, the payment to state budget of all four banks of some trillion dong per year is not too big, compared with over 1 quadrillion dong of state budget revenue in 2018. However, without that revenue, the state budget deficit may not stop at 3.46 percent of GDP, or put pressure on other revenue tasks to ensure state budget spending, as well as pay the principal repayment amount of up to 133.495 trillion dong in 2018 and further increasing in the coming years.
Currently, the state budget is restructuring towards restricting investment for state-owned enterprises (SOEs), including these banks with state capital accounting for a large proportion, even up to 100 percent as Agribank.
In addition, the management of state capital in enterprises is being transferred to the Commission for the Management of State Capital at Enterprises (CMSC), in which the core is the State Capital and Investment Corporation (SCIC). If replacing the state budget payment by shares, it will increase the proportion of state capital in banks. This goes against the trend of promoting equitisation of SOEs and gradually withdrawing state capital from some enterprises.
Thus, it is necessary to adjust the state capital management mechanism at these four banks. SBV is still the agency on behalf of the government to manage the state capital in these banks, not CMSC, as in the case of a series of large corporations such as oil and gas, electricity, mineral, etc.
Based on true competitiveness
In the context of state budget being reserved for regular expenditures, spending capital for investment in infrastructure construction and human resource, non-state capital and foreign direct investment (FDI) play an important role in increasing chartered capital for these four banks
Accordingly, the problem of Agribank is to accelerate the equitisation process, or through the sale of part of state capital, or issue additional shares to domestic and foreign investors to raise capital.
Similarly, for Vietinbank and BIDV, the proportion of state capital after equitisation in these two banks is still too large, in BIDV even up to 95.28 percent.
Therefore, Vietcombank’s case needs to be seriously consulted by Vietinbank and BIDV on reducing the proportion of state capital to 65 percent through selling capital, private placement for domestic and foreign investors. Vietcombank is also the bank with the best profit and financial ratios, reinforcing its leading position compared to the remaining three banks.
The reason for raising chartered capital for banks to ensure the implementation of credit growth targets assigned in 2019 (highest is 15 percent for Vietcombank) is not convincing. The allocation of credit growth targets for each bank is just a temporary measure because it goes against the fair principles of the market.
The role and position of joint-stock commercial banks are growing strongly, occupying the market share of the four state-owned commercial banks, both in deposit mobilisation and lending credit, as well as providing non-credit financial services. Therefore, if these state-owned banks are unable to meet credit growth targets, joint-stock commercial banks will be ready to receive, as they are struggling to increase the credit lending target.
Besides, a healthy competitive environment requires socio-political tasks that need to be transferred to specialised institutions, not SOEs or large banks. Therefore, the implementation of socio-political tasks cannot be the reason for the increase in state capital in state-owned banks.
In 2018, credit growth reached 14 percent, the lowest level in many years. Meanwhile, GDP grew the highest with 7.08 percent. This proved the role of credit in changing economic growth, creating a new trend with much higher capital efficiency than the previous period. Credit growth target of 14 percent for the whole year of 2019 shows that this trend is gradually being established.
Promote the application of technology
The general trend is to diversify banking operations, through promoting non-credit financial services. This helps to increase the proportion of profit from non-credit activities, reduce dependence on credit income, interest rate difference, actively apply technologies, fintech, etc. Banks can improve the operational efficiency and competitiveness of credit institutions system compared to non-bank financial institutions that dominate the market of traditional banks.
Profit record of Vietcombank in 2018, and rise to the leading position (previously belonged to BIDV and Vietinbank respectively) which comes from outstanding advantages in non-credit financial services. Even some commercial banks also grew rapidly from focusing on providing non-credit financial services.
This trend has been increasingly developed thanks to the strong support of science and technology in the industry 4.0. Each state-owned credit institution should focus on implementing a comprehensive restructuring scheme, for equity structure, bank management, risk management, human resources, products, technology, applying practices and international standards, etc. This will help to improve competitiveness in the domestic and international markets.
In conclusion, the issue of raising chartered capital for four largest banks of Vietnam should be considered comprehensively. Accordingly, the issue of financial resources and capital use methods of each bank should be clearly researched. At the same time, it is also necessary to set a development strategy and a comprehensive restructuring scheme for each bank in the national socio-economic development strategy.
Thus, each proposal to adjust the chartered capital of banks can ensure feasibility and the efficient use of state capital.
