Fitch-rated Vietnamese banks, including VietinBank, are estimated to need US$4.1 billion of additional capital to meet Basel II standards. (Photo: VietinBank) Hanoi (VNS/VNA) - A plan to allow largeVietnamese State-owned commercial banks to pay dividends in shares or retaindividends would help them accumulate capital and meet regulatory minimumcapital thresholds, Fitch Ratings has said.
However, the rating agency said, the positiveeffect is likely to be limited relative to the large capital needs State-ownedbanks face amidst rapid balance sheet expansion, underreporting of bad loansand Basel II implementation at the beginning of 2020.
Media have reported that Vietnamese authorities haveagreed to a proposal from the State Bank of Vietnam (SBV) that would allowState-owned banks to preserve internally generated capital by retainingdividends or paying them out in shares. The plan would still need to beapproved by the National Assembly and would enable State-owned banks to followa practice already in place for their private counterparts.
”We estimate that the positive capital impact forFitch-rated State-owned banks (Vietcombank and VietinBank) will be up to 30basis points, which is small relative to our estimated potential capitalshortfall of up to 200 basis points, assuming they target an 8 percent Tier-1capital ratio,” Fitch said in the report, adding Vietnamese banks arefacing substantial capital needs in the run-up to the implementation of BaselII. These standards will increase banks' risk-weighted assets due to changes tocredit risk-weights and the introduction of capital charges for operational andmarket risks.
According to Fitch’s analysis conducted late lastyear, Fitch-rated Vietnamese banks are estimated to need 4.1 billion USD ofadditional capital, of which 90 percent is accounted for by the State-ownedbanks. These banks' much larger capital shortfall reflects their lower capitalpositions and weaker profitability relative to private banks. The total amountof capital required could be even higher if banks raise allowance coverage to5.0 percent of gross loans and Vietnam Asset Management Company special bonds,compared with 1.6 percent at year-end 2018, to address underreportednon-performing loans (NPLs) and Vietnam Asset Management Company specialbonds.
”The lack of depth in the local capital markets andforeign ownership limits continue to constrain banks' ability to raise commonequity, which Fitch views as the best form of loss-absorbing capital. Vietnammaintains a 30 percent blanket foreign-ownership limit for banks and 20 percentlimit for a foreign investor deemed to have a strategic interest. Foreignownership at Vietinbank is already at the 30 percent cap, while for Vietcombankit is 23 percent. Unless the cap is lifted, we expect banks to issue Tier-2debt to help meet minimum regulatory capital ratios,” Fitch concluded.-VNS/VNA
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