State-owned banks to raise charter capital in Q1

Deputy Prime Minister Vuong Dinh Hue (Photo: cafef.vn)

During a working visit to Military Bank after the Lunar New Year holiday, Deputy Prime Minister Vuong Dinh Hue said that the Government would increase charter capital by 10 trillion VND (429 million USD) for Vietcombank and Vietinbank in Q1 2020.

As for Agribank, all its profit in 2020 will be used to increase capital instead of contributing to the State budget.

It was the first time the Government detailed a roadmap for the banks’ capital hike since 2016 when the banks asked for the increase.

The State Bank of Vietnam (SBV), on behalf of the State, currently holds 74.8 percent of capital in Vietcombank and 64.46 percent in Vietinbank.

Meanwhile, fully State-owned lender Agribank is preparing to launch its IPO in the near future.

If getting the funding right in this quarter, the three banks could better meet Basel II standards this year as required by the SBV as well as be qualified to expand credit to support the country’s economic growth.

The banks are under great pressure to hike capital to satisfy Basel II standards, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.

Under the SBV’s regulations, banks must maintain a capital adequacy ratio (CAR) of at least 8 percent as per Basel II norms starting in 2020. The CAR of State-owned banks will fail to reach the minimum level set by the SBV if they fail to increase capital.

Raising capital has been a struggle for Vietnamese banks in recent years. For example, Vietinbank - the fourth largest listed bank - has seen its capital remain unchanged since 2014 at 37.23 trillion VND.

Earlier, Fitch Ratings estimated the Vietnamese banking system could face a capital shortfall of almost 20 billion USD, equal to 9 percent of GDP, to meet Basel II and increase allowance coverage to a level that reflects underlying asset-quality problems.

Many local banks also issued a large amount of bonds to raise capital last year. The latest report from Saigon Securities Incorporation (SSI) showed that banks issued bonds worth 94 trillion VND in the first eleven months of 2019. The issuance made banks the main player in the corporate bond market in the period, accounting for 45.5 percent of the market’s total bond value.