Banks’ worries of charter capital increase

14-Mar-2018 Intellasia | DTCK | 6:00 AM Print This Post

According to the National Financial Supervisory Commission (NFSC), from now until the end of 2020, banks must raise their equity by 1.8-2 times compared to the current level in order to meet the requirements of Basel II, particularly state-owned commercial banks. However, not all banks have the ability to complete the capital raising plan, although they have been trying for many years.

In 2017, the equity growth of credit institutions (CIs) was slower than the increase of total assets. In particular, the total risk-weighted assets rose by 9.3 percent while CIs’ equity was estimated to increase by only 4.6 percent. Thus the pressure to increase capital of CIs will be higher in 2018, especially when the time to apply Basel II is near.

In late 2017, a series of banks raised capital, including names like BacABank, Techcombank. HDBank, MB, VPBank, and ACB, etc. However, according to statistics of the NFSC, by the end of 2017, the Capital Adequacy Ratio (CAR) of the entire system was estimated at 11.1 percent (1.6 percent in 2016), and nine out of 118 CIs recorded negative equity. Hence, the worries of raising capital remains a constant issue.

Recently, VietinBank successfully offered 10-year bonds to the public in the first phase of 2017 with a volume of 200,000 bonds and total face value of two trillion dong. According to the bank, state-owned banks in recent years have mentioned raising capital but they have not yet done so. VietinBank itself has implemented many measures such as partly selling state capital, restructuring equity, issuing secondary bonds to raise tier-2 capital, and restructuring the risky asset portfolio, etc., but it has also not met the requirements.

Thus, in 2018, the raising capital has been considered by the bank’s management board as an urgent issue. VietinBank’s equity is not improved right in the first quarter of 2018, its CAR will not ensure the minimum limit required by the State Bank of Vietnam (SBV) and international practices, thus considerably affecting the bank’s ability of capital provision. Therefore, VietinBank has been urgently preparing some plans to supplement charter capital and has submitted to the government for approval.

At Vietcombank, Chair of the bank’s Board of directors Nghiem Xuan Thanh shared that the bank expects to increase capital to meet the requirements for growth but the need has not been satisfied. Accordingly, Vietcombank has implemented the Basel II programme for several years, and 24 out of 37 initiatives have been implemented with the aim of ensuring that the bank pioneers the compliance with regulations and timelines requested by SBV. So far, most of the implemented initiatives have brought results in business and administration activities, except that the charter capital is not sufficient.

In order to make up for the above shortage, in 2016 and 2017, Vietcombank had to raise a large amount of long-term bonds to improve its tier-2 capital and raise CAR. Along with that, the bank also planned stake to foreign investor, including the sale of about 7 percent of stake to GIC fund from Singapore and the partner Mizuho was also planning to pour more capital in order to balance the ownership ratio.

However, 2017 ended but the sale of stake to GIC could not be completed, although the fund is still pursues. Meanwhile, in the context when the state budget remains difficult, the State is holding dominant ownership and plans to reduce this rate at a reasonable level at Vietcombank, to increase charter capital and improve the CAR, selling shares to foreign investors is the most feasible direction. After the unsuccessful deal with GIC, it takes Vietcombank another year to build plan and apply for approval, as well as waiting for instruction from the direct management agency.

Recently, according to information at Vietcombank’s conference on implementing 2018 plan, the government and SBV have approved the bank’s private placement plan to issue 10 percent of stake to foreign investors. Thus, it can be understood as once the mechanism is approved, the bank is allowed to expand its offering, thereby being able to soon raise capital to meet the growth demand and spurt from 2018.

Not only state-owned banks, other banks like Saigonbank, VietABank, and VietCapital Bank, etc. are also having low capital level, although they have actively raised capital throughout the years.

According to banking and finance experts, the positive developments of the stock market, the lead of bank stocks in the uptrend, and the wave of listing of banks which is forecasted to be exciting in 2018, etc. are the factors supporting bank’s capital increasing plans.

However, Bach An Vien, Head of Analysis Department at KIS Vietnam Securities Company believed that if bank shares are injected into the market at an overly large volume in 2018 due to the need to raise capital, the supply will overwhelms demand and price drop is hard to avoid. This will make the expectation of capital increase of banks to remain difficult to be improved.

 


Category: Finance, Vietnam

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