Banks raise the bar with new capital rules

Banks raise the bar with new capital rules

The new regulations mark a crucial advancement of Việt Nam’s banking system toward standards of Basel III set by the Basel Committee on Bank Supervision.

The new circular also regulates that banks are only allowed to distribute profits in cash when they have fully met the new capital ratios. VNA/VNS Photo

Banking on stability, commercial banks and foreign bank branches must now ensure a minimum capital adequacy ratio (CAR) of 8 per cent from September 15, under Circular 14/2025/TT-NHNN issued by the State Bank of Vietnam.

The new regulations mark a crucial advancement of Việt Nam’s banking system toward Basel III standards set by the Basel Committee on Bank Supervision, allowing for more targeted credit growth in the coming period.

Under the circular, the Common Equity Tier 1 (CET1) ratio of banks must be at least 4.5 per cent and the Tier 1 Capital ratio must be 6 per cent.

For banks with subsidiaries, in addition to these requirements, they must also meet the consolidated ratio.

The circular also stipulates that the Capital Conservation Buffer (CCB) and the Countercyclical Capital Buffer (CCyB) of banks will be gradually increased.

Specifically, the CCB ratio will rise from 0.625 per cent in the first year to 2.5 per cent from the fourth year, thereby bringing the consolidated CAR standard (including CCB) from 8.625 per cent to 10.5 per cent.

Correspondingly, the CET1 ratio (including CCB) will increase from 5.125 per cent to 7 per cent, while the Tier 1 Capital ratio will rise from 6.625 per cent to 8.5 per cent after four years.

The new circular also regulates that banks are only allowed to distribute profits in cash when they have fully met the new capital ratios. This forces banks to prioritise consolidating their capital base before distributing profits to shareholders.

To comply with the regulations, many banks have recently proactively increased their charter capital through issuing shares, retaining profits or issuing debt instruments to supplement Tier 2 capital.

Financial data for the second quarter of 2025 from 29 banks showed that by the end of June 2025 the total charter capital of the entire banking system reached more than VNĐ879.35 trillion, an increase of 6.6 per cent compared to the end of 2024. The five largest banks, including Vietcombank, VPBank, Techcombank, BIDV and MB, hold 41 per cent of the total charter capital. 

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