Separating men from the boys

Le Xuan Nghia, vice chairman of the National Financial Supervisory Commission, said state-owned commercial banks with a lower capital adequacy ratio (CAR) would find the central bank’s Circular 13, effective October 1, tough going.

“Those banks are finding funding resources from the State Budget to increase chartered capital to help them provide more loans under new safety ratio regulations,” he said.

Circular 13/2010/TT-NHNN limited the ratio of credit on deposit at 80 per cent and raised the CAR from 8 to 9 per cent. Of which, deposits are defined as currency held by the public or M1 market which are either individuals or institutions’ deposits, excluding State Treasury deposit.

Deposits also does not include non-term deposits from institutions. The market is now awaiting adjustment to Circular 13 that allows banks to category non-term deposits from institutions in deposit for lending. 

A Vietcombank executive  said that it would be difficult for the bank to expand its credit operations, however, credit growth rates  would still go up. “Our credit growth rate was around 15 per cent by August. We do not set a high growth target but expect to see  around 25 per cent expansion by the year-end.”

Of the 39 commercial banks in Vietnam, Eximbank had a CAR of 26.8 per cent by the end of last year, followed by such banks as Saigon Commercial Bank with a CAR of around 15 per cent. Other banks have ratio at around 8 per cent.

Among banks where the state’s stake is a majority like Vietcombank and Vietinbank, the CAR is around 8 per cent. The leading joint stock commercial bank ACB is also just fitting the required rate with CAR of 9 per cent by August.

An ACB executive the implementation of the circular would create credit opportunities for smaller banks in the market. “Smaller banks will have opportunities to push credit operations once chartered capital is around VND3 trillion while deposit is still limited, meaning that the ratio of credit on deposit is still big for them,” he said.

The ACB executive commented that Circular 13 aimed to prevent finance and property sector bubbles with loan loss provision rate of 250 per cent but its issuance timing  was not proper. “However,  the circular will calm down the competition among banks on both deposit and lending.”