Commercial banks must raise more capital

SGI

In a talk with Saigon Investment, Dr. Nguyen Tri Hieu, a finance and banking expert, expressed his opinion on solutions to increase capital in four major state-owned commercial banks.

Agribank has a capital adequacy ratio close to the threshold of Circular 41.

Agribank has a capital adequacy ratio close to the threshold of Circular 41.

He believes that if these four commercial banks, namely, Vietcombank, Vietinbank, BIDV and Agribank, are not allowed to increase their capital, it will affect the demand for investment capital in socio-economic development because Vietnamese businesses rely heavily on credit extension of banks.

JOURNALIST: - Sir, what do you think about the problem of raising capital in these four state-owned commercial banks in the past?

Dr. NGUYEN TRI HIEU: - Due to a limited budget, the National Assembly stipulated that the state budget will not provide charter capital to credit institutions. In fact, in the plan of allocating investment capital for development of the state budget in the 2016-2020 period, there was no list of medium term public investment plan to increase charter capital for commercial banks with state capital.

Therefore, raising capital in these four commercial banks has faced difficulties. Accordingly, these commercial banks must find ways to increase their own capital, such as calling for capital from foreign investors or raising capital domestically. However, these four commercial banks with state capital must comply with state regulations to hold at least 65% of total number of voting shares, the remaining 35% being private.

Another solution proposed by SBV and state-owned commercial banks is to keep profits and not pay dividends. This method will not change the share ratio of the shareholders. But the Ministry of Finance did not want this solution, because the current budget revenue was heavily based on the support of the state-owned commercial banks. Therefore, the increase of capital in these banks was like treading on water.

- Sir, in your opinion, which solution is suitable for commercial banks with state capital to increase capital for the economy?

- For this issue, the first solution must be to accept the use of budget to increase capital, the second solution is to remove the barrier of ownership percentage of 65%. Four state-owned commercial banks play an important role in the implementation of monetary policies to achieve the goal of macro-economic stability and curb inflation. If the capital of these four banks cannot be increased to meet the capital adequacy ratio of 8% by next year, they cannot support the economic growth. In particular, the solution to break the state ownership of 65% is the most feasible.

Currently, state shareholders hold at least 65% of shares in state-owned commercial banks which hardly have strategic shareholders. Investment without controlling power is just a financial investment, and not attractive enough. At the same time, some banks that ran out of room for the private sector will not be able to expand and raise capital at this rate. If these four commercial banks were to support the economy, it is imperative that they increase capital. The Government must boldly lower the ownership limit of State shareholders to 51% to attract more investment capital.

- Sir, although the Government has proposed a plan to increase capital in these four banks, it was not on the agenda at the recent session of the National Assembly. So what do commercial banks need to do to support the economy while waiting for solutions?

- Banks can continue to support the economy if they restructure their credit portfolio. This means unproductive or ineffective loans can be stopped and replaced with loans that are more active and more effective. That was the way to apply if the four state-owned commercial banks had reached the credit ceiling and capital adequacy ratio and could not raise capital immediately or if banks had to eliminate old loans, terminate old ones to make new loans, and participate in joining co-financed banking programs together.

- Thank you very much.

Commercial banks with equitized state capital must increase their charter capital according to Basel II standards, to also meet the criteria of large, healthy and sustainable banks. The problem is to clarify how to increase the charter capital… allow banks to retain dividend or reduce some commercial banks that the state does not need to dominate, or put resources into banks that need to hold dominant shares. In previous terms, the National Assembly issued a resolution stipulating that state-owned corporations and enterprises leave a part of their dividend to supplement the state budget for reducing debt.

I thought that it was necessary to have a resolution of the National Assembly to handle legal problems to increase charter capital for commercial banks with state-owned capital. At the same time, it was not necessary to keep all four banks with a 65% ownership ratio. With the selected bank, the state can focus on putting all resources together with the private sector at 35% to scale up. To achieve the goal of at least one or two commercial banks being among hundred largest banks in Asia, Vietnam's banking industry has been developing a strategy until the year 2025 with orientation towards 2030.

Dr. Tran Du Lich, member of National Financial and Monetary Policy Advisory Council.

Translated by Hoa Nam

Yen Lam (Interviewer)

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