Safety ratios a big mountain to climb

Vietcombank is one of many local banks to safekeep state funds

Accordingly, the central bank limits the ratio of credit exposure to funding sources at 80 per cent and raised the capital adequacy ratio (CAR) from 8 to 9 per cent. Funding sources exclude the current account balances of institutional businesses and State Treasury deposits. 

An executive of Ho Chi Minh City Securities Corporation estimated state-owned commercial banks would take at least three months to fulfill the safety ratios by restructuring portfolios. The time for commercial joint stock banks will be at least one year.

Of the 39 commercial banks in Vietnam, Eximbank had the highest CAR of 26.8 per cent by the end of last year, followed by Saigon Commercial Bank with a CAR around 15 per cent. Banks’ lowest CAR was around 8 per cent.

Among banks where the state’s stake is majority like Vietcombank and Vietinbank, the CAR is around 8 per cent. Those banks will take time to restructure deposits as State Treasury  deposits account for a large part of banks’ deposits.

“The difficulties in meeting the ratios are facing not only small-scale banks, but also large commercial banks including state-owned banks as those banks’ deposits include a large chunk of State Treasury deposits as well as refunding capital from the central bank. The CAR of those banks will fall from current level when the circular runs effectively,” said a commercial bank executive.

“Around one month remaining for meeting the deadline will be tough as they have to first increase deposits and reduce credits,” he said.

Vietcombank, for instance, received deposits worth VND9.2 trillion ($484 million) from the Ministry of Finance in the first half of this year. Its non-term deposit accounted for nearly 16 per cent of the total deposits. Vietinbank, meanwhile, also received VND10 trillion ($526 million) in capital from the central bank and non-term deposits made up nearly 20 per cent of total deposits.

Vietcombank is reported to be in the process to sell some of the shares it holds, reducing the proportion of higher risk weighted assets such as its shares in Eximbank and Petro Vietnam Drilling and Well Services Corporation.

National Financial and Monetary Policies Advisory Council member Tran Du Lich said there should be some adjustments in the circular execution to make it easier for banks. “It is true to exclude State Treasury deposits, but it should include non-term deposits from institutions, which will help banks to deal with its liquidity in urgent cases,” he said.

State Bank governor, meanwhile, made it clear that the enforcement date of the circular would still be October 1 as local banks already have more than four months to prepare.