Large banks want to retain profits due to worry about capital shortage

20-Jan-2018 Intellasia | DTCK | 6:00 AM Print This Post

To maintain the credit growth rate to the economy as well as meet Basel II standards, leaders of some large banks said raising chartered capital is a very urgent need. Therefore, in order to raise capital, one of the proposals that these leaders proposed is to retain profits.

*CAR of the entire banking system is declining

According to the State Bank of Vietnam (SBV), the chartered capital of credit organisations is gradually rising over the years with nearly 355 trillion dong since 2011 and approximately 489 trillion dong as of 2016.

As of November 30, 2017, the chartered capital of the entire system reached more than 500 trillion dong, up nearly 2.8 percent from the end of 2016, of which, the chartered capital of joint ventured banks and foreign banks increased nearly five percent; compared to the same nearly five percent in joint stock commercial banks, reaching about 211 trillion dong and accounting for 43 percent of the total chartered capital of the system; state-owned commercial banks increased rather modestly, by about 0.8 percent, equal to 149 trillion dong, reckoning for more than 28 percent of the total capital.

Compared to the end of 2015, the chartered capital of the entire system increased nearly 10 percent after the first nine months of 2017, of which, the group of joint venture and foreign banks led with nearly 17 percent, compared to nearly nine percent for joint stock commercial banks and more than 7.5 percent for state-owned commercial banks.

In a recently released report, Bao Viet Securities Company (BVSC) said some state-owned commercial banks will continue facing a lot of difficulties in raising capital in the near future due to the failure in finding strategic partners, as well as creating favourable conditions to make dividend payment by shares to raise capital in 2017.

A senior leader of the State Bank said “the Capital Adequacy Ratio (CAR) of the system in 2017 decreased compared to the end of 2016 due to limited ability to increase equity, while the credit growth demand to the economy is very high. This is a challenge for the banking system, especially state-owned commercial banks having to maintain credit growth rate to the economy”.

To estimate the capital demand for 2018-2020, the National Financial Supervisory Commission (NFSC) said it has developed the model of forecasting annual equity demand for three commercial banks including Vietinbank, BIDV and Vietcombank. As a result, by the end of 2020, due to huge demand for additional equity, banks have to raise equity by 1.8-2 times compared to the current period to meet regulations of Basel II.

“Therefore, these banks need to have a specific roadmap and appropriate calculation to meet the requirement by 2020″, said the report.

*State-owned banks want to retain profits to increase capital

Trinh Ngoc Khanh, Chair of Agribank said “Agribank is currently a wholly state-owned bank, so the chartered capital increase is mainly based on the supply from the state budget”.

To ensure the prescribed safety ratios, and successfully carry out restructuring plan associated with bad debt settlement in 2016-2020 period as well as increase state interest in equitisation, Agribank proposed the prime minister to consider supplementing the chartered capital soon following the plan submitted to the State Bank”.

Similarly, Nguyen Van Thang, Chair of Vietinbank also had the only proposal that is to increase capital. “At the conference on implementing tasks of the banking industry in 2017, Vietinbank proposed raising capital, but was not approved. Therefore, in this year, the bank continues proposing because capital increase is a very urgent matter”, Thang emphasized.

He added, Vietinbank’s capital increase, if not being implemented, then right in Q1/2018, the CAR will stay below the minimum level prescribed by the State Bank as well as international practice.

“Although Vietinbank has actively applied many measures to enhance financial capacity, with the current CAR, it will be very difficult for the bank to achieve credit growth to serve the economy”, said Thang.

He added Vietinbank’s current improvement of financial capacity only looks to the only method i.e. shareholders jointly contribute to raise capital.

“On that basis, Vietinbank proposes the capital increase method as follows: First is to allow Vietinbank to retain profits or make dividend payment by shares. Second is to supplement chartered capital for Vietinbank following the method reported to the State Bank to submit to the government for approval. Third is to use other government’s sources such as the Fund on arrangement and renovation of businesses, etc. to raise capital for Vietinbank”, said Thang.

Nghiem Xuan Thanh, Chair of Vietcombank said the chartered capital increase is a very huge problem for commercial banks especially state-owned ones. Thanh added, in the near future, to control the credit growth as well as develop the socio-economic situation, it is very necessary to have capital because currently, the minimum CAR of state-owned commercial banks, if being applied following the regulation of the State Bank, has nearly approached the minimum safety threshold, and will certainly violate if being applied under Basel II.

“Therefore, Vietcombank proposes to retain half of the annual profit, submitting dividend to the State to carry out the capital increase. A more considerate and long-term method will be to follow the upcoming scheme of the State Bank which will be to collect for opinions from the Ministry of Finance before submitting to the prime minister”, said Thanh.

Reportedly, the State Bank is completing the method of raising financial capacity for four state-owned commercial banks holding more than 50 percent of the chartered capital including VietinBank, Vietcombank, Agribank and BIDV while actively directing state-owned commercial banks to review capital increase plan to meet Basel II standards for the government’s consideration and approval.

 


Category: Finance, Vietnam

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