Being proactive in capital management and getting closer to Basel standards to build a solid capital base and boost lending growth will give banks an edge in their 2023 business.
Safety factor higher than average
Currently, the CAR ratio is calculated according to Circular No. 41 of 2016, approaching the international Basel II standard, which is stipulated to be at least 8%. According to the project "Restructuring the system of credit institutions associated with bad debt settlement in the period 2021 - 2025", the banking industry strives for the CAR of commercial banks to reach at least 10 - 11% by 2023; by 2025, it will reach at least 11 - 12%.
The latest updated data from the State Bank as of the end of October 2022 shows that the total equity capital of State-owned commercial banks applying Circular 41 is VND 422,786 billion, an increase of 15.23% compared to the beginning of the year. CAR is at 9.04%. Meanwhile, the total equity capital of joint stock commercial banks that have applied Circular 41 is VND 722,854 billion, an increase of 18.52% compared to the beginning of the year. The capital adequacy ratio is much higher than that of State-owned commercial banks, reaching 12.29%.
In a recently published report, VNDirect assessed that CAR at Vietnamese banks has improved well, however, the capital buffer of Vietnamese banks is still relatively low compared to international standards.
According to Dr. Can Van Luc, Chief Economist of BIDV , the CAR of banks in Vietnam has improved slowly and is at a low level compared to the region. Not to mention that countries in the region have implemented Basel III or part of Basel III, while Vietnamese commercial banks are only in the process of implementing Basel II.
However, there are still banks with high capital safety ratios, typically Techcombank at 15.2%, followed by VPBank at 15%, HDBank at 13.40%, VIB at 12.7%, Lienvietpostbank at 12.36% and MB at 11.5%. Ms. Tran Thi Khanh Hien, Director of Analysis, VNDIRECT Securities Company, commented that the joint stock commercial bank sector will continue to set a higher CAR ratio target thanks to proactive capital management and closer access to Basel III standards to build a solid capital base and promote loan growth. Accordingly, among more than 20 banks that have implemented Basel II, some banks have completed Basel III such as Lienvietpostbank, VPBank, ACB , TPBank... and all are from the joint stock banking sector.
Lienvietpostbank has announced the completion of the implementation of Basel III Risk Management Standards and IFRS 9 International Accounting Standards. Indeed, to improve the ability to ensure liquidity and system stability, banks have had a long "journey" and by the end of 2022, typically Lienvietpostbank has announced the completion of the implementation of Basel III Risk Management Standards and IFRS 9 International Accounting Standards. Accordingly, the Bank has become one of the few credit institutions in Vietnam to simultaneously complete the implementation of two strict risk management and financial reporting standards in the banking sector worldwide .
Continue to build a solid foundation
In 2023, NIM (net interest margin) is expected to narrow due to high funding cost pressure, so asset yields are unlikely to increase strongly enough to compensate for the difficulty in increasing lending rates when the government is calling for interest rate cuts to share the burden with customers. In addition, the average credit cost ratio of 25 listed banks has decreased to pre-pandemic levels. However, this ratio has increased again since the fourth quarter of 2022, but Ms. Hien believes that this trend will continue in 2023-2024 in the context of increasing bad debt risks.
“Increasing risks in the market will make the capital buffer of credit institutions thinner, making the banking system more vulnerable to adverse shocks from the business environment,” said Dr. Nguyen Tri Hieu, an economic expert.
Therefore, once again, ensuring the CAR ratio, along with increasing capital, has become an urgent need for banks on the way towards the international Basel III standard.
In fact, in recent years, banks, especially joint stock commercial banks, have continuously improved their financial capacity and increased their charter capital. According to statistics from the State Bank of Vietnam up to the end of October 2022, the total charter capital of credit institutions increased by 10.5% compared to the end of 2021 and reached VND 857,266 billion. Of which, the state-owned commercial bank sector had a total charter capital of VND 190,410 billion, an increase of 5.74%; the joint stock commercial bank sector reached VND 452,947 billion, an increase of 15.08%...
As evidence of efforts to increase financial resources, ensure capital safety ratios... to proactively respond to increasing risks, in the last months of 2022, many banks also rushed to increase charter capital and the State Bank of Vietnam issued a document approving the increase of charter capital for nearly 20 joint stock commercial banks.
For example, Lienvietpostbank was allowed to increase its charter capital by an additional VND 5,255 billion in the form of issuing shares to pay a maximum dividend of VND 2,255 billion in 2021 and issue to existing shareholders a maximum of VND 3,000 billion according to the charter capital increase plan approved by the annual general meeting of shareholders in 2021.
2022 approved in Resolution dated April 28, 2022 and approved by the Bank's Board of Directors in Resolution No. 515/2022/NQ-HDQT dated September 26, 2022. After completing the issuances, Lienvietpostbank's charter capital will increase from VND 15,035 billion to VND 20,291 billion, equivalent to an increase of 35%.
As the pillar of the economy, the banking sector has been contributing to macroeconomic stability. Accordingly, with positive changes, new developments of each bank in the system will support the people and the business community, thereby continuing to contribute to the stability and economic growth of Vietnam in the coming time.
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