The banking giants ready to raise capital

27-May-2020 Intellasia | Thoi bao Ngan hang | 6:02 AM Print This Post

Experts expected that the proposal to increase capital for the group of Big Four Vietnam Banks would soon be approved in the shortest time. That would be a turning point in the activities of the above banks and might set a precedent for subsequent capital raising rounds.

According to the scheduled programme, at the ninth session of the National Assembly this time, the government would discuss the proposal to supplement the State budget expenditure estimate in 2020. The supplement might include Vietnam Bank for Agriculture and Rural Development (Agribank) ‘s charter capital from the source of revenue increase, Central budget savings in 2019 corresponding to Agribank’s net profit after tax in 2020, not exceeding 3.5 trillion dong. The government’s determination to increase capital for commercial banks with state capital was evident from the beginning of 2020 when timely raising charter capital for Agribank and state-owned commercial banks holding over 50 percent of capital in the Resolution No. 01/ NQ-CP of the government on the main tasks and solutions for the implementation of the Socio-Economic Development Plan and the State budget estimate in 2020.

Talking to the Bank Times reporter, Can Van Luc, Member of the National Financial and Monetary Policy Advisory Council, said that until then, the National Assembly Standing Committee, National Assembly Economic Committee, Basic Budget, and Finance Committee, had all agreed to support this proposal, which was determined to be a much-needed request from reality. There were two reasons, according to Luc, to consider quickly via the policy of raising capital for Agribank. Firstly, in 2016, the National Assembly issued Resolution 25 with the policy of not using the budget to handle bad debts. Increasing charter capital for commercial banks was also appropriate because the budget faced many difficulties. Nevertheless, then, it had become different thanks to the accumulation of profits from the bank. Secondly, in the context of complicated changes in the Covid epidemic, it was necessary to ensure a healthy banking system operating normally to be able to provide capital to the economy and accompany businesses, especially for the agricultural and rural sector, accounting for a large proportion in the balance of the whole economy, which also contributed to poverty reduction and shadow banking restriction.

Thus, it could be seen that the capital raising door was slightly opened for a pillar of the banking system. There were three other state-owned commercial banks, including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), waiting impatiently to raise capital. In a recent report to the delegation of the National Assembly, SBV Governor Le Minh Hung continued to propose to the National Assembly to amend Resolution No. 25/2016/QH14 or issue a new Resolution in the direction of allowing the use of the State budget to increase charter capital for state-owned commercial banks.

On the bank side, the VietinBank Chair, Le Duc Tho, once again suggested the government to revise Decree 91 soon and approve the plan to increase equity capital for state-owned commercial banks. At present, VietinBank, among the three state-owned commercial banks, was stuck because the capital increase was nearly exhausted, threatening the bank’s operational safety.

Experts said that although the budget was difficult, it was necessary to increase capital for commercial banks with the state capital. Because in the past few years, the credit expansion of these banks had been limited due to the capital adequacy ratio in the context of the slow growth of charter capital. That had greatly affected the capital supply to the economy because they were the key players in granting credit. According to updated data by the end of March 2020, the total assets of the credit institutions’ system reached 12.48 quadrillion dong, up 46.8 percent compared to the end of 2016. However, this figure decreased slightly by 0.72 percent compared to the end of 2019. In particular, the total assets of the Big Four banks reached 5.2134 quadrillion dong, accounting for 41.76 percent of the whole system. In terms of absolute value, the proportion of total assets of these four banks was nearly equal to the whole of commercial banks. All showed that the ability to provide credit of this group had a great impact on the system as well as the economy.

Total assets accounted for nearly half of the system. However, as of the end of March 2020, the charter capital of those above four large state-owned commercial banks reached 145.1 trillion dong, accounting for 23.5 percent of the whole system (charter capital of the whole system reached 617.5 trillion dong). Not to increase the numerator, but the denominator was very risky, which certainly affected the safety of banking operations, a banking expert warned.

Before this fact, Vo Tri Thanh, Member of the National Financial and Monetary Policy Advisory Council, said that although the budget at this time was not abundant and there were still difficulties due to the reduction of budget revenue, it was necessary to consider the capital increase for commercial banks with State capital. In addition to increasing the ability to meet credit for the economy, the proposal to raise capital there was in the process of making the banking system healthier, ensuring the compliance with the provisions on minimum capital adequacy ratio in accordance with Basel II capital standards. Currently, among the Big Four banks, there were still Agribank and VietinBank not completing. The additional funding for banks should not be delayed further because it was challenging to leave next year because bank profits would be lower than the previous year due to risky business, increased bad debt, not to mention sharply reduced profit to support customers, Thanh noted.

Experts expected that the proposal to increase capital for Big Four would soon be approved in the shortest time. That would be a turning point in the activities of the above banks and might set a precedent for subsequent capital raising rounds. Looking further, the Vietnam Banking Industry Development Strategy to 2025, the orientation of 2030, had set the target of one bank to two banks in the top 100 largest banks in the region in terms of total assets by 2020. This goal might be feasible if state-owned banks had enough capital.

 


Category: Finance, Vietnam

Print This Post