Enhancing the financial capacity for four state-owned commercial banks (Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) to support the economy is very urgent in the context when these banks are accepting to sacrifice trillions of dong of profits to reduce lending interests for businesses.
In the report recently submitted to the government, the Governor of the State Bank of Vietnam (SBV) proposed the Ministry of Finance (MOF) to soon make comments on the SBV’s draft statement to the Standing Committee of the National Assembly (NA) regarding the increase of capital for Agribank from the state budget source so that the SBV can soon complete the statement and submit to the NA’s Office for the coming meeting.
At the same time, the SBV’s Governor asked the MOF to quickly complete and submit the government to amend and supplement Decree 91/2015/ND-CP in order to create a legal basis for the increase of charter capital for three commercial banks including BIDV, Vietcombank and VietinBank).
Talking to reporter of Bao Dau tu, Dr Can Van Luc, a member of the National Monetary Policy Advisory Council said that although the state budget is still in difficulty, it is still necessary to increase capital for state-owned commercial banks.
Firstly, the amount of capital needed is not too large, the issue has been proposed and planned. Secondly, in the context of increasing risks, banks should to increase their resistance, especially charter capital because the higher the risks, the weaker banks’ Capital Adequacy Ratio (CAR). Thirdly, this capital increase is included in the roadmap for restructuring and dealing with bad debts of the banking system under the government’s Project 1058 of the government. If the capital is not raised, the ability to provide capital and lower interest rates to support the economy of banks will be worse,” said Dr Luc.
Sharing similar point of view, economic experts said that increasing charter capital for Agribank and not receiving cash dividends from three remaining state-owned banks will make the budget more difficult due to the loss of 10 trillion dong. However, this is not the reason to delay raising capital for state-owned commercial banks. The current context even makes the increase of capital for these banks become urgent.
“I believe that in the current situation, the government must sacrifice the dividends from state-owned banks to help them raise capital. Banks are trying to support businesses, but they themselves are actually facing many difficulties and risks,” said Dr Nguyen Tri Hieu, a banking expert.
Big 4 Banks face the risk of decline in financial strength.
From the beginning of the year until now, four big banks are trying to sharply cut lending rates to support businesses hit by Covid-19, especially borrowers of existing loans. The total amount these banks have committed to support is up to hundreds of trillion dong, meaning that their profits will drop by trillions of dong.
Recently, Vietcombank announced the second time massive lending rate cut for customers affected by the Covid-19 epidemic (lowering five to 10 percent of the interests that customers have to pay). The total number of customers entitled for this interest rate reduction is 90,000 with credit scale of 300 trillion dong. By reducing lending rates twice during this time, Vietcombank’s profit is forecasted to decline by 2.240 trillion dong.
Speaking at a recent meeting between the prime minister and the leaders of ministries and industries, the SBV’s Governor Dao Minh Tu said that state-owned banks this year must definitely reduce about 40 percent of their profits.
The falling profits in the context of increasing risk of bad debts will significantly affect banks’ capital safety. It will be difficult for those banks to carry out the task of supporting the economy if capital is not granted. In other words, strengthening banks’ safety is creating conditions for them to better support businesses and the economy.
Currently, in addition to Vietcombank which is in a little easier status, the three remaining state-owned banks are in fairly stressful situation. In particular, since Agribank is a 100 percent state-owned bank, the capital increase entirely depends on the state budget. However, the bank has repeatedly proposed for many years but not yet been granted by the state budget. Agribank’s leader expects that the bank will be allowed to retain profits to increase its charter capital.
For BIDV, even when it successfully sold 15 percent of stake to the strategic partner KEB Hana, its Capital Adequacy Ratio (CAR) is only 8.77%, not much higher than the minimum requirement of eight percent. According to the plan recently approved by the bank’s general Meeting of Shareholders, in 2020, the bank will continue to increase charter capital from 40.220 trillion dong to 45.549 trillion dong. Specifically, in addition to issuing 281.5 million shares to pay dividends (at a rate of seven percent), the bank will offer to the public or offer privately a total of 251.3 million shares.
The most difficult case is Vietcombank when its room for increasing capital has been almost finished, threatening the bank’s operation. A leader of VietinBank said that the bank’s 2020 business plan depends on the capital raising progress according to the plan submitted to the competent authorities. In the case when the bank is approved to retain all profits in 2017 2019 and carries out other measures to improve CAR such as divesting capital at subsidiaries, selling portfolios, etc., the bank only dares to set a growth target from four to 8.5%.
According to Dr Nguyen Tri Hieu, in the next three months, if the epidemic cannot be controlled, banks will start to suffer the crisis. Thus, supplementing capital for these banks to strengthen the safety net is extremely essential. If capital thinness continues, banks will be very vulnerable and unable to support the economy to overcome difficulties caused by the pandemic.
Meanwhile, Dr Can Van Luc expected that the decision to increase capital for banks will be finally resolved at the National Assembly meeting in May 2020.
