VietinBank is under great pressure to hike capital to satisfy Basel II standards (Photo: VietinBank)Hanoi (VNS/VNA) - The State Bank of Vietnam(SBV) has continued to urge relevant ministries to revise legal frameworks inorder to allow large State-owned commercial banks to use the State budget fortheir capital increases.
Under a report sent to the National Assemblylate last month, the central bank proposed the Ministry of Finance, inconjunction with the Ministry of Planning and Investment, study and reviseDecree No. 32/2018 ND-CP on State capital investment in enterprises and the useand management of capital and assets in enterprises as the regulation currentlyprohibits the use of the State budget to invest in enterprises.
The ministries should study the issue and advisethe Prime Minister and the Government on a proposal to submit to the NationalAssembly for consideration, amendment and issuance of a new resolution onallowing the use of State budget to increase charter capital for State-ownedcommercial banks (excluding banks that are poor-performing and acquiredcompulsorily by the central bank), the SBV suggested.
This was not the first time the central bank hasproposed the use of the State budget to increase charter capital forState-owned commercial banks. Previously, at some conferences, the SBV alsoproposed using State budget to raise capital for banks in dire need of capitalto follow the central bank’s plan for them to meet global capital safetyregulations in 2020.
The banks, including BIDV, VietinBank, Agribankand Vietcombank, are under great pressure to hike capital to satisfy BaselII standards, which are recommendations on banking laws and regulations issuedby the Basel Committee on Banking Supervision. Under SBV’s regulations, banksmust maintain a capital adequacy ratio (CAR) of at least 8 percent as per BaselII norms starting in 2020. The CAR of State-owned banks will fail to reach theminimum level set by the SBV if they fail to increase capital.
Raising capital has been a struggle forVietnamese banks in recent years. Major State-owned banks such as BIDV andVietinbank have long tried in vain to increase charter capital.
BIDV, the second largest listed bank, hascharter capital of nearly 34.19 trillion VND (1.46 billion USD) – unchangedsince 2015.
Vietinbank, the fourth largest listed bank, hasseen its capital remain unchanged since 2014 at 37.23 trillion VND (1.59billion USD).
Only Vietcombank, the largest listed bank in thecountry, last month raised 6.2 trillion VND (265.84 million USD) from selling a3 percent stake to foreign investors as part of its plan to ultimately sell 10 percent.
Fitch Ratings estimated the Vietnamese bankingsystem could face a capital shortfall of almost 20 billion USD, equal to 9 percentof GDP, to meet Basel II and increase allowance coverage to a level thatreflects underlying asset-quality problems.
Fitch forecast banks were likely to step upcapital issuance over the coming months, which could improve the creditprofiles of rated banks if it resulted in a meaningful and sustained increasein capitalisation. However, a lack of depth in the domestic capital marketcould create challenges, particularly as some banks were close to or at thelimit for foreign ownership.
Moody’s also noted that most Vietnamese bankswould still lack sufficient capital to meet the Basel II requirements, soraising capital – primarily from foreign investors due to the underdevelopmentof the domestic capital market – would be a key focus for banks in 2019.
Moody’s points out that despite the banks’improved financial health, greater competition to attract private investmentswould make it more challenging for Vietnamese banks to raise capital in 2019.
To raise capital, the four State-owned bankshave also asked the Government to allow them to either retain their profits orpay dividends in shares rather than cash until 2020, enabling them to meetBasel II standards as required by the central bank.-VNS/VNA
Under a report sent to the National Assemblylate last month, the central bank proposed the Ministry of Finance, inconjunction with the Ministry of Planning and Investment, study and reviseDecree No. 32/2018 ND-CP on State capital investment in enterprises and the useand management of capital and assets in enterprises as the regulation currentlyprohibits the use of the State budget to invest in enterprises.
The ministries should study the issue and advisethe Prime Minister and the Government on a proposal to submit to the NationalAssembly for consideration, amendment and issuance of a new resolution onallowing the use of State budget to increase charter capital for State-ownedcommercial banks (excluding banks that are poor-performing and acquiredcompulsorily by the central bank), the SBV suggested.
This was not the first time the central bank hasproposed the use of the State budget to increase charter capital forState-owned commercial banks. Previously, at some conferences, the SBV alsoproposed using State budget to raise capital for banks in dire need of capitalto follow the central bank’s plan for them to meet global capital safetyregulations in 2020.
The banks, including BIDV, VietinBank, Agribankand Vietcombank, are under great pressure to hike capital to satisfy BaselII standards, which are recommendations on banking laws and regulations issuedby the Basel Committee on Banking Supervision. Under SBV’s regulations, banksmust maintain a capital adequacy ratio (CAR) of at least 8 percent as per BaselII norms starting in 2020. The CAR of State-owned banks will fail to reach theminimum level set by the SBV if they fail to increase capital.
Raising capital has been a struggle forVietnamese banks in recent years. Major State-owned banks such as BIDV andVietinbank have long tried in vain to increase charter capital.
BIDV, the second largest listed bank, hascharter capital of nearly 34.19 trillion VND (1.46 billion USD) – unchangedsince 2015.
Vietinbank, the fourth largest listed bank, hasseen its capital remain unchanged since 2014 at 37.23 trillion VND (1.59billion USD).
Only Vietcombank, the largest listed bank in thecountry, last month raised 6.2 trillion VND (265.84 million USD) from selling a3 percent stake to foreign investors as part of its plan to ultimately sell 10 percent.
Fitch Ratings estimated the Vietnamese bankingsystem could face a capital shortfall of almost 20 billion USD, equal to 9 percentof GDP, to meet Basel II and increase allowance coverage to a level thatreflects underlying asset-quality problems.
Fitch forecast banks were likely to step upcapital issuance over the coming months, which could improve the creditprofiles of rated banks if it resulted in a meaningful and sustained increasein capitalisation. However, a lack of depth in the domestic capital marketcould create challenges, particularly as some banks were close to or at thelimit for foreign ownership.
Moody’s also noted that most Vietnamese bankswould still lack sufficient capital to meet the Basel II requirements, soraising capital – primarily from foreign investors due to the underdevelopmentof the domestic capital market – would be a key focus for banks in 2019.
Moody’s points out that despite the banks’improved financial health, greater competition to attract private investmentswould make it more challenging for Vietnamese banks to raise capital in 2019.
To raise capital, the four State-owned bankshave also asked the Government to allow them to either retain their profits orpay dividends in shares rather than cash until 2020, enabling them to meetBasel II standards as required by the central bank.-VNS/VNA
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