Strengthening the "buffer" for banks.

SGGP June 19, 2023 08:10

Although the financial "health" has improved, the capital adequacy ratio (CAR) of commercial banks remains quite weak. Therefore, commercial banks continued to intensify efforts to increase charter capital in 2023, with the aim of strengthening their resilience.

SHB has just sold SHB Finance to a foreign investor (transaction at SHB Finance). Photo: MINH HUY

Rapid capital increases

According to financial data providers, the CAR (Capital Adequacy Ratio) of commercial banks in Vietnam is quite low compared to the region: only 9.04% (including state-owned commercial banks: Agribank , Vietcombank, VietinBank, BIDV) and 12.29% (private commercial banks). Meanwhile, in many countries in the region such as Indonesia, the Philippines, Singapore, Thailand, etc., the average CAR ranges from 17% to 22%. Although the CAR ratio is "thinner" than that of private commercial banks, state-owned commercial banks account for more than 50% of the country's credit market share. This is also the reason why the State Bank of Vietnam (SBV) recently approved an increase in Vietcombank's charter capital from VND 47,325 billion to VND 55,891 billion through the issuance of shares. It is expected that, after the successful issuance, Vietcombank will become the second largest bank in the system in terms of charter capital, after the privately owned joint-stock commercial bank VPBank.

Similarly, it is expected that at the end of June 2023, the National Assembly will also vote to approve a capital increase plan for Agribank of VND 17,100 billion for the 2023-2024 period, bringing the total to approximately VND 51,430 billion. Accordingly, this year, Agribank will receive an additional capital of about VND 6,750 billion, with the remainder to be implemented next year. The General Shareholders' Meeting of VietinBank also approved a plan to increase its charter capital this year from VND 12,330 billion to approximately VND 66,000 billion; BIDV also plans to increase its charter capital to over VND 61,557 billion this year through two rounds of share issuance…

In addition, the State Bank of Vietnam (SBV) has also approved private commercial banks to increase their charter capital through various methods. Specifically, TPBank has been approved to increase its charter capital by a maximum of nearly VND 6,199 billion through the issuance of shares, raising its charter capital to VND 22,000 billion. ABBank has also completed a share issuance to distribute dividends to shareholders, raising its charter capital to over VND 10,350 billion; ACB has also increased its charter capital from VND 33,774 billion to VND 38,840 billion through the issuance of shares to pay dividends for 2022; HDBank has been approved by the SBV to pay dividends in shares at a rate of 15% and increase its charter capital to over VND 29,200 billion from VND 25,303 billion…

In addition to the banks mentioned above, nearly 20 other commercial banks are currently planning to increase their charter capital this year, most of them distributing dividends in the form of shares. If these capital increase plans are successfully implemented, the charter capital of the banking system will increase by approximately VND 163,000 billion by the end of the year, equivalent to a 26.7% increase.

Regarding the capital increase, Agribank's leadership stated that the additional capital will not only enhance financial capacity and provide a foundation for the bank to expand its operations and ensure its leading role in providing capital to the agricultural sector, but also help Agribank improve its credit rating and increase its surplus value during the equitization process. "Increasing Agribank's capital this year is crucial to ensure the 7.5% credit growth target set by the State Bank of Vietnam at the beginning of the year is met."

Otherwise, Agribank's credit growth would only increase by 3.5%,” the bank representative shared. Mr. Pham Quang Dung, Chairman of the Board of Directors of Vietcombank, also stated that increasing charter capital will create conditions for Vietcombank to expand its business operations, meet the capital needs of the economy, and invest in transformation projects to improve the bank's management and operational capacity.

Take advantage of foreign investment.

In reality, over the years, commercial banks have all announced capital increase plans, but some have only partially completed their plans. In 2022 alone, 27 commercial banks planned capital increases, but only 15 successfully did so. Therefore, instead of relying solely on domestic resources, commercial banks are also actively attracting foreign capital to increase their capital. Specifically, in April this year, VPBank received a deposit of VND 3,590 billion from the sale of 15% of its capital to SMBC Bank (Japan), and it is expected that after completing the procedures, around July 2023, VPBank will receive an additional VND 32,310 billion.

According to VPBank's leadership, with approximately VND 36,000 billion raised from the capital sale, the bank will strengthen its capital buffer, helping to expand its business scope and meet the diverse needs of individual and corporate customers, including FDI clients.

SHB has also just completed the transfer of 100% of its charter capital in SHBFinance to Krungsri Bank (Thailand), and is expected to receive approximately VND 1,800 billion. SHB stated that the agreement will bring significant capital surplus to SHB shareholders as well as enhance its financial capacity and position. In addition, Vietcombank is planning a private placement of 307.6 million shares to foreign financial investors; BIDV also plans a private placement of 455.3 million shares…

- Dr. Nguyen Tri Hieu, Banking and Finance Expert:

A thicker buffer will experience less loss.

Rising non-performing loans pose a potential systemic risk. Furthermore, the CAR ratio of many commercial banks is not only low but also improving slowly compared to the region. Banks will face the challenge of asset quality in the coming period, with significant pressure from increasing non-performing loans and increased provisions. Therefore, strengthening their capital buffers will help banks minimize losses when risks occur.

Source: https://www.sggp.org.vn/gia-co-bo-dem-cho-ngan-hang-post694229.html