Vietnam’s top banks struggle to increase capital to meet global norms

By Minh Son   September 25, 2018 | 11:54 pm PT
Vietnam’s top banks struggle to increase capital to meet global norms
A woman rides a bicycle past a logo of Vietcombank, in front of the State Bank building in central Hanoi. Photo by Reuters/Kham
Three top Vietnamese banks have been struggling to increase their capital to meet international adequacy norms.

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

The National Financial Supervisory Commission found that Vietnamese banks need to increase their charter capital by 1.8-2 times to meet the Basel capital adequacy ratio (CAR).

They include three of the four biggest lenders, BIDV, Vietcombank and Vietinbank.

BIDV, Vietnam's biggest bank by assets, currently has total assets of VND1,270 trillion ($54.3 billion) but capital of nearly VND34.19 trillion ($1.46 billion), which has remained unchanged since 2015.

BIDV’s CAR is now only 9 percent according to leading broker VietCapital Securities, which is “close to dangerous” if compared to Basel II standard, the bank’s CEO, Phan Duc Tu, said.

In the last three years the bank has been making three or four plans each year to increase charter capital, but none of them have been successful.

In 2016 BIDV and Vietinbank had offered to pay its largest shareholder, the State Bank of Vietnam (SBV), the previous year’s dividends in stocks and not cash to increase its capital.

But the central bank rejected it saying it needed the cash.

Last year BIDV had made several plans like initiating an employee stock ownership plan (ESOP), selling shares to existing shareholders, paying dividends in stocks, and private placement of shares to strategic shareholders.

Again all of them fell through.

The public bank with the highest state ownership - of over 95 percent - has been looking for strategic investors it can sell stakes to but in vain.

In 2016 Vietcombank, the third largest bank by assets, signed a deal with Singapore sovereign wealth fund GIC Private Limited to sell a 7.73 percent stake. The deal has yet to be consummated, with the bank’s chairman, Nghiem Xuan Thanh, saying they have been unable to agree on a price.

Vietcombank’s charter capital has remained since 2016 at VND35.98 trillion ($1.54 billion).

The SBV recently gave the lender approval to increase its charter capital by 10 percent to VND39.58 trillion ($1.69 billion).

Vietcombank plans to make a private placement of 10 percent of its stake and has received approval from its shareholders for this.

Should its plan succeed, Vietcombank will surpass Vietinbank as the bank with the largest charter capital.

Vietinbank, the country’s second largest lender by assets, has seen state ownership fall to the minimum permitted level of 65 percent, and so can no longer issue more shares.

Its charter capital has remained at VND37.23 trillion ($1.59 billion) since 2014.

A masterplan, approved by the Prime Minister early last month, 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 set targets to reduce the state capital ownership in three major banks: Vietcombank, BIDV and Vietinbank.

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

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

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