Business
Vietnam banks poised to rush in capital hike race for survival in 2019
Besides seeking funds in the domestic market, some banks such as HDBank and VIB also planned to issue international bonds.
Local commercial banks will be forced to increase capital in 2019 if they don’t want to face a sharp reduction in profits as some suffered last year, experts have said.
The central bank has issued a warning since the middle of last year that it would grant a credit growth quota for each commercial bank depending on the health and capital hike capacity of the bank in 2019.
The regulation is aimed to force local banks to meet capital standards according to Basel II – a set of banking standards and principles issued by the Basel Committee on banking supervision to enhance competition and transparency in the banking system and make banks more resistant to market changes.
To meet the Basel II standards by 2020 as planned by the central bank, listed commercial banks must increase capital by VND237 trillion (US$10 billion) in 2018-2019 if they want to get permission to grow credit by 14-15 percent, analysts at Bao Viet Securities Company (BVSC) estimate.
However, Le Duc Thuy, former chairman of the National Financial Supervisory Commission, said that capital of the banks increased by only some US$2 billion over the last two years.
The first two cases that suffered serious impacts due to the failure to increase capital as required by the central bank last year were LienVietPostBank and VietinBank. After the central bank requested the two banks to reduce their credit growth due to their failure to increase capital, LienVietPostBank in October had to lower its profit target to only VND1.2 trillion (US$51.28 million) from VND1.8 trillion (US$76.92 million) set early last year. The cut for VietinBank was from VND10.8 trillion (US$461.54 million) to VND6.7 trillion (US$286.32 million).
As most of banks still earn profits from credit, experts said banks therefore will have to rush in a survival race to increase capital to meet the central bank’s requirement this year if they want to make profits.
“In 2019, raising capital will be the hardest pressure for banks,” economist Le Xuan Nghia said, explaining that only by increasing capital, banks can get credit growth quota from the central bank to be able to make profits.
The race to increase capital will be fiercer in 2019 as many banks failed to do so last year. In early 2018, nearly 20 banks targeted to raise capital, but only few succeeded at the end of the year.
Bond issuances boom
Falling short of diverse ways to increase capital, a lot of banks have chosen bond issuance as a solution to meet the target.
State-owned Vietcombank in October last year alone made three issues of nearly 3.3 million bonds, raising a total of VND329.3 billion (US$14 million). The month also saw two other state-owned banks – BIDV and VietinBank – issue two-year bonds worth VND3.45 trillion (US$147.4 million) and VND450 billion (US$19.23 million), respectively. Before this issuance, BIDV made four bond sales in 2018 totaling VND1.01 trillion (US$43.16 million) while the figure for VietinBank was up to VND18.6 trillion (US$794.8 million).
Military Bank also successfully raised nearly VND1.39 trillion through the sale of six-year and 10-year bonds while VIB also raised VND2.2 trillion from three-year bonds at a fixed interest rate of 6.3 percent per annum last year.
Besides seeking funds in the domestic market, some banks such as HDBank and VIB also planned to issue international bonds. HDBank, for example, expects to issue 3,000 convertible bonds worth US$300 million through private placement in 2018 or 2019.
Experts forecast the trend of bond issue to increase capital will continue this year, besides other measures such as share sales or dividend payment in shares.
VietinBank had to cut profit target from US$461.54 million to $286.32 million in 2018
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The regulation is aimed to force local banks to meet capital standards according to Basel II – a set of banking standards and principles issued by the Basel Committee on banking supervision to enhance competition and transparency in the banking system and make banks more resistant to market changes.
To meet the Basel II standards by 2020 as planned by the central bank, listed commercial banks must increase capital by VND237 trillion (US$10 billion) in 2018-2019 if they want to get permission to grow credit by 14-15 percent, analysts at Bao Viet Securities Company (BVSC) estimate.
However, Le Duc Thuy, former chairman of the National Financial Supervisory Commission, said that capital of the banks increased by only some US$2 billion over the last two years.
The first two cases that suffered serious impacts due to the failure to increase capital as required by the central bank last year were LienVietPostBank and VietinBank. After the central bank requested the two banks to reduce their credit growth due to their failure to increase capital, LienVietPostBank in October had to lower its profit target to only VND1.2 trillion (US$51.28 million) from VND1.8 trillion (US$76.92 million) set early last year. The cut for VietinBank was from VND10.8 trillion (US$461.54 million) to VND6.7 trillion (US$286.32 million).
As most of banks still earn profits from credit, experts said banks therefore will have to rush in a survival race to increase capital to meet the central bank’s requirement this year if they want to make profits.
“In 2019, raising capital will be the hardest pressure for banks,” economist Le Xuan Nghia said, explaining that only by increasing capital, banks can get credit growth quota from the central bank to be able to make profits.
The race to increase capital will be fiercer in 2019 as many banks failed to do so last year. In early 2018, nearly 20 banks targeted to raise capital, but only few succeeded at the end of the year.
Bond issuances boom
Falling short of diverse ways to increase capital, a lot of banks have chosen bond issuance as a solution to meet the target.
State-owned Vietcombank in October last year alone made three issues of nearly 3.3 million bonds, raising a total of VND329.3 billion (US$14 million). The month also saw two other state-owned banks – BIDV and VietinBank – issue two-year bonds worth VND3.45 trillion (US$147.4 million) and VND450 billion (US$19.23 million), respectively. Before this issuance, BIDV made four bond sales in 2018 totaling VND1.01 trillion (US$43.16 million) while the figure for VietinBank was up to VND18.6 trillion (US$794.8 million).
Military Bank also successfully raised nearly VND1.39 trillion through the sale of six-year and 10-year bonds while VIB also raised VND2.2 trillion from three-year bonds at a fixed interest rate of 6.3 percent per annum last year.
Besides seeking funds in the domestic market, some banks such as HDBank and VIB also planned to issue international bonds. HDBank, for example, expects to issue 3,000 convertible bonds worth US$300 million through private placement in 2018 or 2019.
Experts forecast the trend of bond issue to increase capital will continue this year, besides other measures such as share sales or dividend payment in shares.
