Big banks get capital without clearing debts

The government’s capital injection will help banks restructure efforts

The first two tranches saw a total $529 million be injected into state-owned commercial banks during 2002-2003.
“We are checking the financial status of the banks before we release any funds,” said the head of the ministry’s Finance and Banking Department, Pham Phan Dung.
Although he would not disclose the results of the inspections, Dung said overall the banks were not repaying their debts quickly enough, and this might affect their bad debt ratios.
To receive funds under the recapitalisation scheme, state-owned commercial banks must have a bad debt ratio of less than 5 per cent — a feat none has achieved, according to the State Bank.
At the end of last year, the banks’ non-performing loans totalled $1.5 billion and since then only $750 million has been repaid.
“One of the reasons is that the legal framework for debt settlement such as regulations on the transfer of land-use rights or retrieval of mortgaged-assets are not synchronous and hard to enforce,” Dung said.
Despite the bottleneck of overdue debt that Dung admitted could take years to settle, he confirmed the ministry would hand out the last installment of its recapitalisation scheme.
Agribank will get the biggest chunk of the installment with $44 million, increasing its chartered capital to $311 million.
“We can now improve our financial positions and thus provide loans for big borrowers,” Agribank deputy general director Do Tat Ngoc said.
Vietcombank and Vietincombank, who will each get $25.9 million, increasing their chartered capital to $188 million each, were more cautious, saying they were not aware of the decision, but the cash injection would help quicken the pace of restructuring.
The injection will also help to increase the capital adequacy ratio of the banks, which currently stands at around 4 to 5 per cent, far below the required 8 per cent.
The Ministry of Finance will channel the money to the banks through the sale of government bonds. These special bonds have a term of 20 years with a coupon of 3.3 per cent.
The bonds cannot be traded in the first five years. Under the amended Banking Law, state-owned commercial banks are allowed to use bonds as collateral for short-term loans or discounts at the central bank.