VBA calls for raising charter capital at four major State banks
The Vietnam Bank Association (VBA) has repeated its call for the Government to approve charter capital hikes at four major State-owned commercial banks, noting that the delay could adversely affect money supply for the economy.
The credit supply of the four State banks – the Bank for Investment and Development of Vietnam (BIDV), the Vietnam Bank for Industry and Trade (VietinBank), the Vietnam Bank for Agriculture and Rural Development (Agribank) and the Bank for Foreign Trade of Vietnam (Vietcombank) – may not grow, possibly leading to declines in gross domestic product growth and tax revenue for the State, according to the VBA.
Also, the capital adequacy ratio (CAR), an international standard that measures a bank’s risk of insolvency from excessive losses, may be violated, which would adversely affect the banks’ operations, international credit ratings and reputation as well as limit their key role in the country’s overall banking system.
Earlier, the State Bank of Vietnam asked local banks to meet minimal capital requirements, based on Basel II, an international business standard that requires financial institutions to have enough cash reserves to cover risks incurred by operations.
Since then, the four major banks have carried out specific plans focused on restructuring and improving their business performance.
They have also adopted various measures to enhance their financial capacity. These include controlling their credit growth rates in line with the instructions of the central bank, restructuring their portfolios of risky assets in a way that reduces risk-weighted assets, and issuing secondary bonds to increase tier-2 or supplementary capital.
Despite their concerted efforts to adopt these measures, the banks have yet to meet the CAR standards, according to the VBA.
The association cited current statistics, stating that the minimum CAR ratio of the four banks, in line with the Basel I standards, averages 9.4%, which closely reaches the minimum levels of regulations and is much lower than the average level of domestic credit institutions at 13%.
VietinBank faces substantial capital needs
Among the four banks, according to the VBA, VietinBank desperately needs to raise its charter capital. Since 2014, the lender has not received fresh capital injections.
During the same period, VietinBank has maintained its average scale growth rate of 18.5% and has paid dividends in cash with a high rate of 7%-10% of its charter capital.
As a result, the CAR ratio of the lender currently reaches the minimum levels under the regulations of the central bank.
VietinBank has already adopted all measures to increase its capital to the maximum. It is hampered by the existing regulations on State ownership and foreign ownership at State-owned banks as well as the ratios of secondary bonds and secondary debts.
Consequently, VietinBank saw credit expansion of only 6% last year, the lowest in over 10 years. This affected its ability to cope with the capital demand of businesses and had direct impact on the business results of the bank and the State budget revenue.
At present, the total assets and outstanding loans at the four banks account for some 50% of the total in Vietnam’s banking system.
Though these banks have not been funded by the State in recent years, they have still expanded their credit to meet the capital needs of the economy, according to the VBA.
The VBA stated that priority measures are urgently needed to deal with the charter capital hike. Therefore, the association suggested the Government allow the banks to retain their annual profits and pay their dividends in shares to accumulate capital as quick-fix solutions.