State-owned banks seek capital injection

Some securities groups say proceeds from expected deals may not have a major impact on their size, photo Le Toan

The State Bank of Vietnam (SBV) has unveiled its 2-year action framework in Decision No.422/QD-NHNN dated March 18. The SBV would place a premium concentration on raising charter capital for the state-owned commercial banks (SOCBs) of Vietcombank, VietinBank, BIDV, and Agribank.

“Vietcombank, VietinBank, and BIDV could enhance their financial capacity from retained earnings. Meanwhile, Agribank will get a similar sum from state budget sources,” the SBV highlighted.

Vietcombank chairman Pham Quang Dung last week emphasised the importance of a capital hike in SOCBs.

“The scale of charter capital and capital adequacy ratio (CAR) of SOCBs are insufficient in comparison to growing demand and international standards,” Dung said, highlighting that the total charter capital of the four banks only accounts for 23.6 per cent of overall charter capital of the whole banking system.

He added that a lack of capital limits their ability to diversify their operations, which reduces funding sources they can mobilise for the economy and, as a result, weakens their leadership status in the landscape. This is illustrated by a reduction in capital mobilisation from 52 per cent in 2018 to 48 per cent in 2021, and a reduction in credit from 50 per cent in 2018 to 46 per cent last year.

“Given the state’s limited financial resources, we propose the government allow SOCBs to utilise all after-tax profits to augment much-needed funds. Moreover, we advocate for a fresh initiative to lift the foreign ownership limit (FOL) in commercial banks to 35 per cent,” he added.

Additionally, Dung elaborated, SOCBs should be given permission to set their own annual credit growth on the basis of meeting all legal provisions on prudential limitations, with a premium for those who are involved in weak financial institutions’ reorganisation.

Tanh Tran, analyst at Yuanta Securities, told VIR that Vietcombank is allegedly showing interest in offloading a 6.5 per cent stake to international suitors. The bank might benefit from this move since it could provide considerable growth impetus. Mizuho Bank of Japan is currently the largest foreign shareholder of Vietcombank, followed by Singapore’s sovereign wealth fund, GIC.

Meanwhile, foreign partners could acquire 8.5 per cent interest in BIDV, a decision that the bank has been deliberating over for some time. BIDV’s deputy general director, Tran Phuong, said the deal is slated to be completed either this year or next.

Hana Financial Investment is currently the strategic partner of BIDV Securities Company (BSC), as it participated in its private placement. The South Korean giant also purchased up to 65.73 million shares of BSC, equivalent to a 35 per cent stake of the brokerage in a deal worth $117.4 million.

VietinBank, by the same token, could make a tidy sum if it could successfully offload its stake in some subsidiaries, such as VietinBank Securities and VietinBank Leasing.

Tran Phuc Vinh, CEO of VietinBank Securities, last week remarked that the brokerage could seek alternative possibilities to diversify its funding source, including locating strategic investors and issuing new shares for existing investors to guarantee that all of them receive equal rewards. The brokerage has also set its FOL at 49 per cent, preparing for prospective international tie-up deals.

KB Securities last year predicted that proceeds from expected deals would not have a significant impact on the bank’s size. However, after successful divestment, VietinBank could boost the efficiency of its core business, banking services.

Elsewhere, Agribank is the only lender in which the state retains full ownership. Thus, capital increases are entirely dependent on budgetary financing, which causes Agribank to fall further behind other SOCBs in terms of charter capital, adversely hurting its CAR.

Earlier in January, Agribank chairman Pham Duc An expressed his concerns over the bank’s thin capital. “Our capitalisation pales in comparison with some smaller lenders, with a credit scale of just 25 per cent,” An said.

Prior to Agribank’s equitisation slated for the end of the year, he espoused that the state budget is used to bolster Agribank’s capital, which would be beneficial to both the bank and the state.

The SBV, in its latest announcement, also confirmed that it would submit an appropriate blueprint to address Agribank’s case to the National Assembly.

On the other hand, banks’ extra capital requirements may climb to as high as $10.7 billion, or 2.9 per cent of GDP if banks were to increase their loan-loss reserves and maintain average CARs of 10 per cent, according to Fitch Ratings. The shortage is mostly attributable to the weaker capital positions of SOCBs.

“We expect Vietnam’s capitalisation levels will remain thin. The average CAR of Basel II compliant state-owned and private sector banks stood at 9.2 and 11.4 per cent, respectively, at the end of the third quarter of 2021,” Fitch Ratings said. “This thin capitalisation will partly reflect rapid credit growth, which we expect most Vietnamese banks to pursue in the medium-term, given their heightened risk appetites.”