Bank restructuring on the right path heading into the New Year

05-Jan-2017 Intellasia | VOV | 6:00 AM Print This Post

In response to the global banking crisis, the finance ministers of the G20 countries have agreed on stricter regulation of the banking system, with stronger capital requirements, says Dennis Hussey, CEO of ANZ Vietnam.

The capital requirements are stricter on both a risk-weighted basis and on a non-weighted basis (the leverage ratio), as well as augmented liquidity standards, better known as the Basel III Accord.

Given that private-sector credit has been estimated to have grown at an unsustainable near 20 percent for 2016, implementation of the tougher Basel standards could not have come at a more appropriate time, noted Hussey

These standards once fully in place will help protect the country from another spike in nonperforming loans.

In a speech at the recent 33rd Asian Bankers Association general Meeting and Conference, Le Minh Hung, governor of the State Bank of Vietnam, said a few Vietnam banks have already increased their leverage and (risk-weighted) capital ratios to full Basel III-compliant levels.

Those that haven’t are on track for full implementation by 2019.

Hung said, there are three ways for banks to increase their capital ratios: increase their capital base; decrease the riskiness of the balance sheet; or thirdly, by selling assets to gain short term liguidity and necessary long term capital.

The 10 banks chosen for restrcuring to the Basel standards by the State Bank of Vietnam (SBV) include BIDV, VietinBank, Vietcombank,Techcombank, ACB, VPBank, MB, Maritime Bank,Sacombank and VIB.

Noteworthy progress towards the new standards have been made by Vietcombank, which recently announced its decision to sell a 7.73 percent ownership stake to foreign banks to increase its capital to meet the tougher Basel standards.

Meanwhile, a proposed sale by Vietcombank of an 8 percent ownership stake to the government of Singapore Investment Corporation, is pending SBV approval.

In addition, earlier in 2016, VPBank successfully negotiated the sale of a 5 percent ownership interest to the International Finance Corporation, a member of the World Bank, added Hung.

These moves demonstrate Vietnam banks can increase their capital ratios entirely by capital base expansion, preventing the banks from being forced to reduce balance sheets and allowing forearlier hikes in risk weights than had been anticipated.

It is therefore plausible that these injections of equity capital also preventunhealthy constraints on credit supply, and thereby enhance investment and economic growth for the upcoming year, he underscored.

Nghiem Xuan Thanh,chair of Vietcombank and vice chair of the ABA, suggested that other banks should quickly get on board and follow suit and look to foreign banks to attract needed capital, saying it’s a transparent, profitable alternative that offers security for the macroeconomy.

Thanh also suggested that another positive move going into the new calendar year would be a decision by the prime minister to boost the foreign ownership ratio to 35 percent from the current 30 percent rate for local joint stock banks.

For commercial banks thorough consideration should be accorded raising the ownership rate to 100 percent.

Le Xuan Nghia, an economic banking expert, indicated many foreign banks are bullish on the idea of acquiring ownership interests in Vietnamse banks and are awaiting a final decision by the prime minister.


Category: FinanceAsia

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