The bank also submitted an application to the State Bank for approval of capital adequacy ratio earlier than expected. But looking at the current health status of Viet Capital Bank, it will not be easy for it to meet the criteria for Basel II.
Attempts to raise capital
In recent years, Vietnamese banks have been in fierce competition to raise capital to apply for Basel II in time to meet the schedule stipulated by the Government and the State Bank. In this quest to increase capital of banks from 2011-2018, Viet Capital Bank consistently maintained its chartered capital equal to the legal capital of VND 3,000 billion. During this time, the bank also made attempts to raise capital but failed.
Specifically, in 2016, Viet Capital Bank received approval of the State Bank to raise additional capital from VND 1,000 billion to VND 4,000 billion, through issuance of 100 million shares to existing shareholders at the ratio of 3:1. By mid-2017, in a report to the State Securities Commission, the bank admitted it could not raise capital because the needs of major shareholders and other shareholders was not being satisfactorily met.
Customers are being served at VietCapitalBank. Next, the bank would continue to issue 50 million shares to existing shareholders with the ratio of 6:1 to increase its chartered capital to VND 3,700 billion. But by the end of 2018, the chartered capital didn’t increase as expected. In 2019, the bank did not mention any plan to raise capital, but the consolidated financial statements of the second quarter showed that the chartered capital had a slight adjustment, at VND 3,171 billion.
Currently, Viet Capital Bank stands out as a high interest rate mobilizing bank with highest average interest rate upto 8.6%/year. Recently, the bank also issued certificates of deposit with interest rate of 10.2%/year. This movement of capital shows that Viet Capital Bank is currently focusing on liquidity issues.
Lack of transparency
At the end of the first half of 2019, Viet Capital Bank released its Financial Statement which presented basic information, but specific information and details of operating were not mentioned. According to the audited consolidated financial statement of the second quarter, the net interest income in the first six months reached VND 418.9 billion. Services and other activities increased by 185% and 739%, to VND 28.3 billion and VND 19.3 billion.
Foreign exchange trading, and trading of investment securities dropped sharply by 42% and 44%, reaching only VND 19.6 billion and VND 21.6 billion, respectively. Meanwhile operating costs increased by 26% over the same period, reaching nearly VND 414 billion. Profit before tax was only VND 47.8 billion, a huge gap compared to the target of VND 205 billion for the whole year of 2019.
According to the Financial Statement, the bank provision for credit losses in the first six months of 2019 decreased sharply by 61%, with provision of VND 46 billion compared to VND 117.9 billion in the same period last year. There are no explanatory notes on activities in the second quarter Consolidated Financial Statement. So, it is impossible to know any information about debt classification as well as bad debt, therefore it is not possible to determine whether the bank will reduce its provision or the bad debt ratio will also be reduced.
Recently, the Bank released a Consolidated Financial Statement for 2019 audited by KPMG, when applying for early application of Basel II at the State Bank and listing on UPCoM on September 16. The audited financial statement was also quite sketchy, and did not supplement the explanation of many items.
Notably, KPMG stated in a report, “Interim review of financial information includes conducting interviews, primarily interviewing those responsible stakeholders for accounting and financial matters, and performing analysis of other review procedures. An audit is substantially narrower than an audit conducted in accordance with Vietnamese Standards on Auditing, so it is not permissible to gain assurance that all core matters may be identified in an audit”.
In Basel II, pillar one is the minimum capital requirement, pillar two is monitoring and supervision, but there is also a third important pillar that requires banks to publish qualitative and quantitative information on key parameters of their business records, risk and risk management.
This is considered as a prerequisite for the effectiveness of the banking market principles. But a semi-annual Financial Report only satisfies the requirements of information disclosure, and lacks detailed explanation of those items that raise the issue of information transparency of the bank.
Previously, the 2018 consolidated financial statement was also published in the same format. Given that context, the condition for this bank to apply early for Basel II is quite difficult. Therefore, after Viet Capital Bank announced that it had submitted the application to the State Bank for approval of application for Basel II earlier than expected, it attracted the attention of investors to look into the implementation of this bank's declaration.
