Customers make transactions at a VPBank office. (Photo: VNA) During theseason of bank annual general meetings (AGM) this year, along withambitious business plans set for 2022, 17 out of 27 listed banks have approvedplans to increase capital in the year, totalling nearly 2.8 billion USD.
The capitalincrease will mainly come from issuing shares to pay dividends, offeringprivate placement or issuing shares to foreign strategic investors.
If theapproved capital increase plans succeed, the order of capital size of banks inthe market will be changed, with private bank Vietnam Prosperity Joint StockCommercial Bank (VPBank) surpassing State-owned banks to top the list.
At therecent AGM, VPBank was given the go-ahead by its shareholders to issue itsshares to staff under the employee stock ownership plan (ESOP) scheme and, atthe same time carry out the plan to further strengthen its capital via theshare issuance from equity and the private placement with a strategic investorto eventually bolster the bank's charter capital to 79.33 trillion VND.
Before theexpected capital rise, Fitch Ratings said the average capital adequacy ratios(CARs) of Basel II compliant State-owned and private sector banks in Vietnamstood at 9.2 percent and 11.4 percent, respectively.
According toFitch, low capitalisation levels are likely to remain a credit weakness for ratedVietnamese banks as rapid loan growth will make it challenging to raise capitaladequacy ratios (CARs) in the next two to three years.
The ratingagency said the capitalisation of Vietnam’s banking sector had improvedgradually in recent years amid rising profitability and banks’ capital raisingefforts.
Fitchestimates that the banks that are still to become Basel II compliant need onlyabout 0.6 billion USD of new capital to meet the local Basel II minimum CARrequirement of 8 percent before the implementation deadline in January 2023.
“However, wecalculate that the banking system's additional capital needs would rise to asmuch as 10.7 billion USD (2.9 percent of GDP) if banks raised their loan-lossreserves to cover potential losses from all problem loans while simultaneouslymaintaining average CARs at 10 percent. State banks drive much of the shortfalldue to their lower capital positions,” it said.
Fitchforecasts Vietnam’s capitalisation levels will remain thin, partly reflectingrapid credit growth. Given their heightened risk appetites, the rating agencyexpected most Vietnamese banks to pursue in the medium term. Sustained highloan growth could eventually exacerbate asset-quality problems, especially in asevere economic downturn.
According toFitch, the capital accumulation has been low, despite the strong profitabilitymany domestic banks have reported in recent years. This is because most of therise in retained earnings was consumed by rapid loan growth./.
VNA
