Big punt for extra credit for state banks

BIDV is expected to launch its initial public offering in 2008

The central bank’s proposal calls for the government to issuing registered bonds worth VND11.6 trillion ($725 million) to increase chartered capital for BIDV, Incombank and Agribank. Of the amount, the government will channel VND5.3 trillion ($331.2 million) to Incombank and VND4.6 trillion ($287.5 million) to BIDV, both scheduled to receive the funds by December. Agribank will take up the remainder late next year.
The move will raise capital from domestic sources. Each package grows out of a need to mitigate risk from bad debts. The new capital funding will put the three local institutions at the international standard for capital adequacy ratio of 8 per cent. BIDV said in its report that bad debts made up about 12 per cent of its total outstanding loan in 2005.
“Until the government agrees, the shortage of capital will continue,” said an official from the central bank.
BIDV and Agribank have also issued long-term bonds to strengthen their position. An official from BIDV said the bank would finish its proposal for restructuring in November as well as apply new debtor classifications to reduce the ratio of bad loans.
The government gave the green light for equitisation of the three state-owned banks for 2007 and IPOs may take place in 2008. Two other banks including Vietcombank and Mekong Housing Bank are ready now.
The central bank has worked with the Ministries of Finance and Planning and Investment to appraise bad debt figures reported by the three banks as well as capital arrangements.
Agribank will focus on increasing its financial capabilities during 2007 and the equitisation process may start from 2008.
However, Agribank’s restructure will take longer than the others, expected in 2009. It will take more than a year for the banks to prepare for the process, including hiring international consultant agencies.
Agribank is the country’s largest bank in total assets, valued at VND190 trillion ($11.8 billion), and registered capital of VND6.2 trillion (329.5 million). BIDV is the third with total assets of VND131.7 trillion ($8.2 billion) and VND3.9 trillion ($243.7 million) in registered. The tallies for Incombank are VND90 trillion ($5.6 billion) and VND4 trillion ($250 million) respectively.



No. 788/November 20-26, 2006