According to the State Bank of Vietnam (SBV), by the end of April 2019, the Capital Adequacy Ratio (CAR) of state-owned banks has improved compared to the end of 2018.
The agency has announced some basic indicators of credit institution (CI) system. Accordingly, the system’s total assets by the end of April 2019 increased by 1.36 percent compared to the end of 2018 to 11,214.678 trillion dong; in which state-owned banks took the lead in size with 4,929.765 trillion dong (up by 1.37 percent); followed by private joint stock banks with 4,629.867 trillion dong (up by 1.64 percent). Despite being in the third position in total asset size, the total assets of joint venture and foreign banks fell by 1.03 percent in the first four months of 2019 to 1,124.962 trillion dong.
Not only total assets but equity and charter capital of the entire system also increased. In particular, the system’s equity rose up fairly strongly by 5.66 percent to 851.795 trillion dong in the first four months of the year. Private joint stock banks still took the lead in equity with 352.305 trillion dong (up by 4.18 percent compared to the end of 2018); followed by state-owned banks with 282.199 trillion dong (up by 5.06 percent) and joint venture and foreign banks with 177.037 trillion dong (up by 8.7 percent).
The charter capital of the banking system also went up by 1.05 percent to 582.379 trillion dong. Private joint stock banks also ranked first in charter capital with 268.872 trillion dong (up by 0.61 percent over the end of 2018); followed by state-owned banks with 149.001 trillion dong (up by 0.75 percent) and joint venture and foreign banks with 116.619 trillion dong (up by 2.76 percent).
Since the equity grew at a faster rate, the CAR of the system improved to 12.19 percent from 12.14 percent recorded in the end of 2018. In particular, the CAR of state-owned banks increased from 9.54 percent to 9.61 percent and CAR of joint venture and foreign banks increased from 25.88 percent to 25.90 percent. Nevertheless, the CAR of private joint stock banks fell from 11.24 percent to 11.1 percent. It shows that the asset risk level of private joint stock banks tends to increase.
The CAR improvement of state-owned banks was due to their curb on total asset increase. Typically, the credit growth of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) rose up by 3.6 percent in the first quarter (Q1) of 2019, while that of VietinBank even saw a negative growth of 0.4 percent.
In addition to the strict control on credit growth, state-owned banks have even actively issued bonds to raise Tier-2 capital. Typically, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) has received approval of the SBV to issue 10 trillion dong of bonds to the public.
Another solution is that some banks have divested capital in other banks. The typical case is the full divestment of 15,121,635 shares held by VietinBank at Saigon Commercial Joint Stock Bank for Industry and Trade (SaigonBank) in the end of March 2019. Through this deal, VietinBank collected over 304 billion dong to supplement its equity, including a capital surplus of about 153 billion dong.
In addition, it is worth mentioning the large profit which state-owned banks attained in the first months of the year. The Q1 financial statements showed that the pre-tax profit was over 5.878 trillion dong in Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), up by 34.84 percent; 2.521 trillion dong in BIDV. Despite the negative growth, VietinBank’s pre-tax profit still reached 3.153 trillion dong, up by 4.1 percent over the same period of 2018.
Nevertheless, according to a banking expert, the CAR improvement of state-owned banks is not really sustainable. For example, limiting the increase of total assets will cause banks to lose customers and reduce their competitive advantage in the long run, thereby affecting banks’ profits. The high profit that banks have gained in recent time is only temporary because the Net Interest Margin (NIM) of the system is on a downward trend. The expert emphasized that to sustainably improve CAR, banks need to increase charter capital, adding that raising charter capital is becoming more urgent when the CAR of state-owned banks is still the lowest in the system and only slightly higher than the minimum limit of nine percent regulated by the SBV.
According to the Vietnam Banking Association (VBA), despite synchronously applying measures, state-owned banks (except for Vietcombank) have not met the minimum capital level according to the Basel II standards. Therefore, the VBA has submitted a document proposing the State to allow state-owned banks retain annual profit or distribute the State’s dividends in share in order to increase capital.
