Banks aim to up cap­i­tal ahead of new stan­dards

The Myanmar Times - - International / Business -

PROS­PER­OUS busi­ness per­for­mance and pos­i­tive bank share price trends in the stock mar­ket are ex­pected to help some com­mer­cial banks meet their cap­i­tal in­crease dead­line as re­quired by the State Bank of ViӋt Nam (SBV).

Ac­cord­ing to the Na­tional Fi­nan­cial Su­per­vi­sory Com­mis­sion, many banks are un­der great pres­sure to hike cap­i­tal to sat­isfy the SBV’s reg­u­la­tions on meet­ing Basel II stan­dards by the end of 2020.

Un­der SBV’s Cir­cu­lar No 41/2016/ TT-NHNN, banks must main­tain a cap­i­tal ad­e­quacy ra­tio (CAR) of at least 8 per cent as per Basel II norms, start­ing in 2020.

With the new reg­u­la­tion, which re­placed Cir­cu­lar 13/2010/TT-NHNN, the CAR of many banks will fail to reach the min­i­mum level set by the SBV if they fail to in­crease cap­i­tal.

CAR is ex­pressed as a per­cent­age of the bank’s cap­i­tal to its risk-weighted as­sets and is one of the main met­rics used to de­ter­mine the sta­bil­ity and ef­fi­ciency of fi­nan­cial sys­tems. The higher the bank’s cap­i­tal ad­e­quacy ra­tio, the higher the de­gree of pro­tec­tion of de­pos­i­tor’s as­sets.

Ac­cord­ing to the NFSC’s re­port, the av­er­age CAR of the bank­ing sec­tor has been con­sis­tently fall­ing since 2017.

It dropped from 11.6 per cent at the end of 2016 to 11.1 per cent at the end of last year. The ra­tio con­tin­ued to go fur­ther down by 0.25 per­cent­age points to 10.85 per cent by the end of Fe­bru­ary 2018, of which, State-owned com­mer­cial banks de­creased by 0.16 per­cent­age points and joint stock com­mer­cial banks re­duced by 0.44 per­cent­age points.

An­a­lysts say this is be­cause banks’ as­sets have grown much more rapidly than their eq­uity.

In 2016, the sec­tor’s to­tal as­sets went up by 16 per cent but char­ter cap­i­tal up by only 6.11 per cent.

Last year, all big State-owned com­mer­cial banks in­clud­ing Vi­et­inBank, Vi­et­com­bank and BIDV had to­tal as­sets ex­ceed­ing VNÐ1 quadrillion (US$43.85 bil­lion) af­ter rising by 9.3 per cent while their eq­uity grew by only 4.6 per cent.

Ex­perts warn that when BASEL II stan­dards are ap­plied, banks’ CAR will plunge due to an in­crease in the quan­tum of their risky as­sets.

Mean­while, the group of Sta­te­owned banks has an av­er­age CAR of 9.69 per cent, close to the stip­u­lated min­i­mum. It will plunge be­low 8 per cent when BASEL II stan­dards are ap­plied.

There­fore, most banks planned to in­crease their char­ter cap­i­tal in re­cent years.

The stock mar­ket surged sig­nif­i­cantly, help­ing banks to raise char­ter cap­i­tal through share sales and div­i­dend pay­outs by shares; tinnhan­hchungkhoan. vn quoted the Na­tional Fi­nan­cial Su­per­vi­sory Com­mis­sion as say­ing.

To cap­i­talise on the growth of the stock mar­ket, many banks have rushed to is­sue shares for cap­i­tal in­crease.

Mil­i­tary Bank (MB) and VPBank, for ex­am­ple, re­cently re­ceived the SBV’s ap­proval to raise their char­ter cap­i­tal. Ac­cord­ingly, VPBank will in­crease its char­ter cap­i­tal from VNÐ15.7 tril­lion (US$694.7 mil­lion) to VNÐ25.299 tril­lion, while MB’s char­ter cap­i­tal will like­wise raise from VNÐ18.15 tril­lion to VNÐ21.6 tril­lion.

Viet­nam News

Ex­perts warn that when BASEL II stan­dards are ap­plied, banks’ CAR will plunge due to an in­crease in the quan­tum of their risky as­sets.Photo:

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