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Saturday, December 3, 2022

Banks unveil ambitious charter capital hike plans

By Thuy Le

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Banks have faced pressure to increase their charter capital over the past few years to enhance their financial capacity and improve safety indicators to get closer to international standards.

Overview of charter capital hike race

In 2022, 22 banks have planned to increase their charter capital by a total of VND154 trillion, the highest ever. The figure is 1.5 times higher than the VND100 trillion planned last year. If three State-owned commercial banks—the Bank for Foreign Trade of Vietnam (Vietcombank), the Bank for Investment and Development of Vietnam (BIDV) and the Vietnam Joint Stock Commercial Bank of Industry and Trade (VietinBank)—which account for nearly 23% of the total increased charter capital, are not taken into account, private commercial banks are seeking to increase their charter capital by nearly VND119 trillion.

Vietnam Prosperity Joint Stock Commercial Bank (VPBank) registered the highest increase, at VND34.2 trillion, or 76% over 2021. It is followed by Vietcombank with VND18.8 trillion, equivalent to a surge of some 51%.

In addition, BIDV has planned a charter capital increase of VND10.6 trillion; Saigon Hanoi Commercial Joint Stock Bank (SHB), VND9.3 trillion; LienVietPostBank, VND9.2 trillion; Military Commercial Joint Stock Bank (MBBank), VND9.1 trillion; Southeast Asia Commercial Joint Stock Bank (SeAbank), VND7.9 trillion; Asia Commercial Joint Stock Bank (ACB), VND6.8 trillion; VietinBank, VND5.7 trillion; and Vietnam International Bank (VIB), VND5.5 trillion.

However, regarding the relative growth rate, Nam A Bank registered the highest growth, at 106%, although its absolute increased amount is only VND5.4 trillion. It is followed by LienVietPostBank, with a growth rate of 76.5%. VPBank ranks third despite the highest absolute growth, while Viet A occupies the fourth position, followed by SeABank, which expected growth of 54%.

With these charter capital hike plans, the banks’ charter capital will change significantly at the end of this year. Accordingly, VPBank will take the lead with VND79.3 trillion, becoming the first private joint stock commercial bank to overtake State-owned commercial banks in charter capital. BIDV will fall from the leading position to the second, with VND61.2 trillion, while Vietcombank will jump from the fifth to the third position with VND55.9 trillion, and SHB from the eighth to the sixth position with VND36 trillion. On the other hand, VietinBank will drop from the third to the fourth position with VND53.8 trillion, and MBBank from the fourth to the fifth position with VND46.9 trillion.

Meanwhile, some banks will not increase their charter capital this year, such as Techcombank, Sacombank, Eximbank, SaigonBank and PGBank. Among them, Techcombank and Sacombank have had large charter capital, while small banks with charter capital equivalent to their legal capital, such as SaigonBank with VND3.1 trillion and PGBank with VND3 trillion, also have no plans to increase their charter capital this year.

Banks will raise their charter capital mainly by using their profits to pay share dividends, and issuing bonus shares, extra shares to existing shareholders and ESOP (Employee Stock Ownership Plan) shares. Only a few banks have plans to offer their shares to strategic partners, including VPBank, SHB and OCB.

Improving financial capacity

As stated earlier, banks have faced pressure to increase their charter capital over the past few years. Under a plan to restructure the economy in the 2021-2025 period issued by the Government, all commercial banks, excluding poor-performing ones, were expected to apply the Basel II standards.

To date, 86% of commercial banks and branches of foreign banks in Vietnam have determined their capital adequacy ratios (CARs) pursuant to Circular 41/2016/TT-NHNN prescribing prudential ratios for the operation of banks and foreign bank branches. The remaining commercial banks and branches of foreign banks will use the circular to determine their CARs by January 2023.

Regarding domestic banks, 20 banks have been recognized as having applied the Basel II standards. Therefore, their pressure to hike the charter capital in the remaining months of this year is good news. In addition, some banks are looking to apply the Basel III standards, so the charter capital hike is an annual requirement.

According to the credit rating agency Fitch Ratings, State-owned banks’ CAR is at 9.2% on average, while the average ratio of joint stock banks is 11.4%. Vietnamese banks’ capital may pick up some US$10.7 billion in the next two to three years to meet safety standards.

Additionally, the fiercer competition in the market due to the appearance of FinTech firms, the digital transformation demand to meet development strategies in the new era and the enhancement of risk management have forced banks to increase their charter capital to ensure enough resources for investment activities and the upgrade of their information technology and management systems.

According to the forecast by the State Bank of Vietnam (SBV), in the next three to five years, digital banks will see minimum revenue growth of 10% each, and 58.1% of credit institutions expect that more than 60% of their customers would use digital transaction channels and the number of customers would expand over 50% each.

Enhancing business development

With the ongoing economic recovery resulting in the strong demand for borrowing loans, banks have been motivated to raise their charter capital to meet their business development targets in the coming periods. The banking sector’s credit growth target was set at 14%. However, according to the central bank, credit grew 6.75% in the first four months of the year, 1.5 times higher than the 4.14% in the same period last year and equivalent to the 48% of the credit growth target set for this year.

The surge in charter capital will also put banks under pressure to earn equivalent profits, so they may accept more adventurous business solutions to ensure profitability, especially issuing more shares to existing stakeholders or strategic partners. Nevertheless, due to the unfavorable developments of the stock market since early last month, the charter capital hike by issuing more shares to existing shareholders or offering shares to investors will be challenging.

If charter capital hike plans are successful, they will help slow down the interest rate hike this year as the pressure on banks to mobilize capital will be lighter. Techcombank is a typical example. Its charter capital has risen strongly since it listed its shares in 2018, which helped the bank keep deposit rates at low levels, even lower than those of State-owned commercial banks.

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