RELEASED DATE 10 Jun 2019
In this regard, Vietnam Banks Association (VNBA) has put forward many motions to competent State authorities for resolution, but many issues have remained unsolved.
Prime Minister’s Decision No. 1058/QD-TTg dated 19 July 2017 approving the scheme for “Restructuring system of credit institutions associated with settlement of bad debts in the period of 2016-2020” sets the goal to increase the banks’ charter capital to guarantee their capital adequacy ratio (CAR) under the Basel II and the State’s regulating role in state commercial banks, with the State holding at least 65% of the total number of voting shares; in Decision No. 986/QD-TTg dated 8 August 2018 on approving the “Development strategy of Vietnam’s banking sector to 2025, with orientations to 2030”, it is requested that, until 2020, commercial banks with over 50% of charter capital held by the State must have sufficient capital as per CAR under the Basel II.
Accordingly, the banks have created their specific plans with focus on restructuring, business efficiency, and measures to improve their financial capability, for instance: controlling the credit growth in line with the State Bank of Vietnam’s guidelines; restructuring the risk-weighted asset categories considering lowering the proportion of assets with high risk factor; issuing Tier-2 subordinated bonds to improve the CAR. Despite the measures taken comprehensively to the greatest extent, these banks could not manage to reach the minimum ratio of 8% under Basel II.
At this time, the average CAR of the 4 state-run commercial banks has reached 9.4%, which is very close to the minimum requirement under Basel I, and is lower than the average ratio of the overall system of credit institutions in Vietnam, which is 13%.
To follow the guidelines and goals set by the Government and for the operating safety of the system, the four banks (Vietcombank, Vietinbank, BIDV, and Agribank) are in a strong need of the State’s support in implementing their charter capital raising plan.
With this in mind, the VNBA states that: “Total assets and outstanding loans of the 4 state-run commercial banks account for around 50% of those of the entire banking system. In recent years, though they have not been provided with additional capital by the State, the banks have put their effort in credit expansion to meet the economy’s capital demand; promoting their key roles, and gaining high growth with great contribution to the State budget as dominant and pioneering banks of Vietnam. If the effort to raise their charter capital is failed, these banks will be forced to slow down their credit growth, which may adversely impact their ability in providing capital for the economy, thus, affecting the economic growth and reducing the state budget collection of tax, as well as posing a threat on the banks’ capability to reach the capital adequacy ratio, international credit ratings, and market reputation, and put a restraint on their active and key role in the entire system.”
Sharing its concerns and expectations with the three other state commercial banks, BIDV is seeking the State’s permission for the bank to retain its annual income or pay dividends in stocks. This will help the bank increase capital and partly solve current impediments and constraints.