In the first quarter (Q1) of 2020, the market share of the Big 4 banks (including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank), and Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) dropped. The reason is not entirely due to the impact of the Covid-19 pandemic, but the limitation on capital requirements of some of the group members.
State-owned banks play a special role in meeting the capital demand to serve the national economic development. With total assets and outstanding credit accounting for more than 50 percent of the entire banking system, this group is considered a pioneer force in implementing policies of the State Bank of Vietnam (SBV) and a tool to guide the market, contributing to carry out the monetary policy, serving the goal of macro stability.
However, for many years, this group’s charter capital has not been supplemented. This makes the growth of charter capital of the group to always be less than the growth rate of total assets, leading to the decline in Capital Adequacy Ratio (CAR). Currently, the CAR of state-owned banks is much lower than the average level of the system of domestic credit institutions.
According to BizLIVE, the CAR of Agribank as of December 31st 2019 was 9.2%, much lower than the average level of the system. As of March 31st 2020, the bank’s CAR was also 9.2%, close to the prescribed limit of nine percent in Circular 22/2019/TT-NHNN.
However, according to Basel II standards (Circular 41/2016/TT/NHNN), CAR of Agribank was only 7.3 percent as of December 31st 2019, 6.9 percent as of March 31st 2020, far less than the minimum requirement of eight percent.
For VietinBank, the CAR by the end of 2019 according to Circular 36 was only 9.25%. If based on Circular 41, this number is much less.
For Vietcombank and BIDV, the efforts to increase charter capital by issuing shares to investors and issuing bonds to increase Tier-2 capital in the recent time could not be completed as planned.
In particular, Vietcombank only successfully issued three percent of the equity (the target was 10%) due to the significant increase in market price of the bank’s stocks which made them less attractive.
By the end of 2019, BIDV only managed to issue an addition of 15 percent of charter capital to the foreign strategic investor KEB Hana. The bank’s charter capital accordingly increased by 6.033 trillion dong.
However, despite issuing additional shares to strategic shareholder and issuing bonds to raise Tier-2 capital BIDV still lacks of a large amount of capital for this year’s growth alone.
Without raising sufficient capital, banks must stop expanding credit, or even lower the outstanding loans to ensure safe operation in accordance with regulations.
According to BizLIVE, if VietinBank cannot increase charter capital this year, the bank will have to sharply cut its outstanding credit by 90 trillion dong. Meanwhile, the credit demand is currently very large, and VietinBank will have to consider more cautiously the disbursement of many projects.
For Agribank, if the bank’s charter capital was not supplemented, at the beginning of 2020, the bank may have to sharply cut outstanding loans and be unable to meet the needs of agriculture and rural development.
The decline in credit growth leads to the fall in total assets of banks. This has been reflected in the latest financial statements of the Big 4 banks.
The opportunity of private joint stock banks
The credit growth deceleration of the four state-owned banks also means that their market share is at risk of being narrowed. In fact, Q1 2020 witnessed the decline in market share of two members with leading market share in the system in terms of total assets and credit VietinBank and Agribank.
Overall, the very slow credit growth in the early months of this year is also due to the limited and weakening force of the Big 4 banks.
In this context, the opportunity to encroach a bigger piece of market share is opening for the group of private joint stock banks which meet the requirement on CAR. Many private joint stock banks have managed to have their charter capital being approximate or even higher than state-owned banks.
Vietnam Technological and Commercial Joint Stock Bank (Techcombank) is an example. By the end of 2019, the bank’s charter capital was 35 trillion dong, higher than Agribank’s (nearly 30.5 trillion dong). Techcombank ranked the fourth in the system in terms of charter capital.
Similarly, Vietnam Prosperity Commercial Joint Stock Bank (VPBank) and Military Commercial Joint Stock Bank (MB) are also in a fierce race when their charter capital reaching respectively 25.3 trillion and 23.7 trillion dong.
The growth of charter capital along with the growth in total assets have helped the CAR of many banks be maintained at high level when applying Circular 41, such as Techcombank (15.5%), VPBank (11.1%), Asia Commercial Joint Stock Bank (ACB, 10.9%), Maritime Commercial Joint Stock Bank (MSB, 10.25%), etc., based on Basel II standards.
When the CAR is ensured, banks will be granted higher credit growth limit compared to the sector’s average. The opportunity to expand market share is thus opened.
