Removing the capital increase bottlenecks at State-owned commercial banks

11-Oct-2018 Intellasia | Dau tu Chung khoan | 6:00 AM Print This Post

From the perspective of international financial experts, the policy of contributing more capital not only helps State-owned commercial banks raise capital, increase lending capacity, and improve their ability to support the economy, but also makes these banks more attractive to foreign investors.

The State Bank of Vietnam (SBV) has recently approved for Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) to increase its chartered capital from 35.978 to 39.575 trillion dong through private offering with 10 percent of shares.

This plan was approved by the general Meeting of Shareholders of Vietcombank in the annual meeting in 2017. If the plan is successfully implemented, Vietcombank will become the bank with largest chartered capital in the system.

Increasing chartered capital is a problem for State-owned commercial banks.

In fact, at the conference summarising the operation of State-owned banks in the last three years, the story of capital increase was mentioned a lot by the banks’ leaders, because of continuously unsuccessful plans to increase capital.

At Vietcombank, the agreement to issue 7.73 percent of stocks for the investment of the government of Singapore Investment Corporation (GIC) was signed by the two parties from the end of August 2016, but has not had any move yet.

Issue shares to foreign shareholders is considered the “shortest path” for Vietnamese banks to raise capital, since in the current context, it is difficult to find a domestic organisation that is capable of pouring trillions of dong cash to invest in banks. Similar to Vietcombank, Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) is in the process of negotiating with Hana KEB Bank in the deal to be a strategic investor of BIDV.

Trinh Ngoc Khanh, Chair of Vietnam Bank for Agriculture and Rural Development (Agribank) said that Agribank is now a 100 percent State owned commercial bank, raising chartered capital depends on the State budget. From 2011 until now, Agribank has been allocated 8.3 trillion dong of State budget.

The bank’s chartered capital is now 30 trillion dong, the lowest among the four State-owned commercial banks, resulting in limited financial capacity, low minimum capital adequacy ratio, affecting the implementation of business activities, especially the investments in agriculture and rural areas.

State-owned commercial banks account for about 50 percent of total outstanding loans of credit institutions. At the same time, SBV’s statistics show that, as of 31st May 2018, the equity of State-owned commercial banks was 252.472 trillion dong, lower than the equity of the group of joint stock commercial banks which is 315.340 trillion dong.

Accordingly, the minimum capital adequacy ratio of State-owned commercial banks was 9.39 percent, while that of joint stock commercial banks was 11.34 percent.

After three years Vietcombank could not raise capital, the SBV’s move to approve for the bank to increase its chartered capital is seen as positive. However, one SBV senior leader share that “this decision is one of the ways to handle the story of raising capital, rather the resolution to the hot issue”.

Share with the Bao Dau tu Chung Khoan regarding the capital increase of State-owned commercial banks on the presentation at the World Bank’s (WB) East Asia and Pacific Economic Update, Sebastian Eckardt, WB’s chief economist in Vietnam, said that raising capital for State-owned banks in Vietnam is very important.

“Given the relatively small capital room of State-owned banks, Vietnam needs to increase the buffer, thereby creating greater security and resistance to economic instability, making the banking system work better as a financial intermediary as well as a measure to redistribute resources of the society, creating the firm foundation for economic growth.

Contributing more capital is the overall solution to reform the banking system and is a very important part of the sustainability as well as growth,” said Sebastian Eckardt.

Meanwhile, Eric Sidgwick, Country director of Asian Development Bank (ADB) in Vietnam, said that Vietnamese banks would have to raise capital to meet Basel 2′s minimum capital requirements.

Resolution 42 of the National Assembly on Bad Debt Management has supported many of the handling of bad debts in the banking system and allowed banks to recover their debts from the sale of collaterals with more specific measures. Gradually with such measures, banks are better qualified to meet the requirements for Basel 2 and this is a positive trend to be maintained in the near future.

“Raising capital for State-owned banks will have to use State budget. When banks have more capital, they will be seen as attractive, and become a strategy to attract capital from strategic investors,” said Eric Sidgwick.

 


Category: Finance, Vietnam

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