VietinBank running out of options to raise capital

By Minh Son   December 12, 2018 | 06:02 pm PT
VietinBank running out of options to raise capital
VietinBank struggles to increase its capital to meet international norms. Photo by VnExpress
International norms require VietinBank to increase its capital, but its current ownership structure leaves little room to act.

According to securities company VCSC, VietinBank’s capital adequacy ratio (CAR) was 10 percent last year and is expected to be 9.7 percent this year. The industry average in Vietnam is 12.14 percent.

However, once Vietnam moves to Basel II standards from 2020, according to securities companies, VietinBank’s CAR will fall by 1-3 percentage points, failing to meet minimum requirements.

The second Basel Accords, or Basel II, prescribe a CAR of 8 percent of risk-weighted assets for all financial institutions to cover operational risks.

While Vietcombank and BIDV, two of Vietnam’s largest banks by assets, are issuing shares to their strategic shareholders, VietinBank has seen no movement in its chartered capital of VND46.2 trillion ($1.99 billion) from 2013.

The state’s stake in VietinBank is over 64 percent, the lowest approved rate, and foreign investment is already at its legal maximum of 30 percent, said Le Duc Tho, chairman of VietinBank.

Considering the fact that VietinBank’s CAR is so near the minimum requirement, the easiest way raise capital is to pay stock dividends, experts say.

Whether this will be approved or not depends on many factors.

For instance, in 2016, despite receiving concurrence from the State Bank of Vietnam, VietinBank was unable to carry out the stock dividend payment due to pressure from the Ministry of Finance on budget issues.

Even the bank’s plan to pay VND4 trillion ($172.24 million) as dividend in 2017, in whole or in part with shares, has not been authorized by the competent authorities until now.

Le Duc Tho, chairman of VietinBank, revealed that the bank is proposing that it is selected as one of the state-run banks that can have its state ownerships reduced to 51 percent in 2020.

This is seen as the most feasible solution for VietinBank when issuing shares to existing shareholders will be difficult to do along with maintaining the needed state ownership ratio.

A master plan recently approved by the Prime Minister targets to have 3-5 banks listed on foreign stock exchanges.

The plan, which covers the banking sector's development until 2025 with a vision to 2030, also sets targets to reduce the state’s ownership in three major banks: Vietcombank, BIDV and VietinBank.

In 2018-2020, the state will reduce its shares in these banks to at least 65 percent and in 2021-2025, to 51 percent.

Vietnam has nine wholly-owned foreign banks, four state-owned banks and 31 joint-stock banks.

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