The door is open
The Government has just issued Decree 121/2020 / ND-CP amending and supplementing Decree 91/2015 / ND-CP on investment of state capital in enterprises and management and use of capital and assets in enterprises. Accordingly, adding joint stock commercial banks with more than 50% of charter capital held by the State to the list of enterprises may continue to invest capital to maintain the proportion of shares and contributed capital of the State in these enterprises.
With the above decree amendment, according to TS. Vo Tri Thanh – Member of the National Financial and Monetary Policy Advisory Council, the Government has created a legal basis to help state-owned commercial banks such as Agribank, VietinBank, Vietcombank, and BIDV to increase their charter capital. “In the context that the world economy contains many hidden risks, banks need to increase their resistance, especially to increase capital. Because of the increased risk, banks’ CAR must be thicker to respond well or in other words to minimize losses when the market fluctuates. If you are not sure about the impact on the ability to supply capital, reduce interest rates to support the economy of banks ”, PhD. Vo Tri Thanh said.
Capital increase will help improve credit supply capacity for state-owned banks.
Have similar views, TS. Nguyen Tri Hieu commented that increasing capital for state-owned commercial banks at this time is of great significance. Especially at this time when the economy is being affected by epidemics. The problem of bad debt increase is unavoidable. Therefore, in addition to meeting the Circular 41 of the State Bank on capital adequacy ratio, the addition of equity to minimize the impact of NPLs on banking operations is essential.
At this point, banks can rely on three channels to raise capital: retained earnings; mobilized from existing shareholders and thirdly called potential shareholder capital. However, according to TS. Nguyen Tri Hieu, the most viable capital raising channel and banks can be proactive is from the retained profit through the share dividend. Because calling potential shareholders at this time is not easy in the context of the stock market’s erratic fluctuations due to disease. While raising capital from existing shareholders is also facing many difficulties because investors are more defensive than expanding investment.
For state-owned banks, it is even more difficult to raise capital with the approval of the State shareholder. Therefore, the new regulations in Decree 121 are facilitating the capital increase of state-owned banks, which is a positive signal for the financial and monetary market. However, according to TS. Hieu, currently the budget is in difficulty, so the additional capital may not be as high as the initial expectation of banks.
But banks should also accept it because in the difficult context, there is a need for sharing. “Although the budget is facing many difficulties, the Government recognizes that increasing capital for the banking system is more important, so it has issued Decree 121 to add state-owned banks to the corporate portfolio continue to invest capital to maintain the ratio of shares and capital contribution ”, TS. Hieu shared his opinion.
TS. Vo Tri Thanh also said that being on this list does not mean how much banks want to increase but have to wait for approval. How much is approved depends on each time the budget is abundant or tight.
Positive signals for the economy
The bank that is most excited after the decree is issued is probably VietinBank. Also because the space to increase capital has almost been exhausted, VietinBank is facing a great challenge when it has to meet the credit capital needs for socio-economic development and to ensure the minimum CAR required by standards. Basel II. Therefore, for several years now, the bank has proposed to use profits to pay dividends to increase charter capital.
Talking to the Banking Times reporter, VietinBank Chairman Le Duc Tho said that, on the basis of the provisions of Decree 121, VietinBank is submitting a plan to increase capital and share dividends. “After many years of petitioning, this decree has only been revised, so the bank must make specific plans to implement it. We have submitted to the State Bank of Vietnam, waiting for approval ”, Mr. Tho shared.
At the beginning of the year, talking to the press, Mr. Tho said that after being able to increase capital with retained earnings in 2017-2018, the CAR is estimated at about 8.2% according to the provisions of Circular 41. Currently, although he has not disclosed the specific number, Mr. Tho said that immediately after the capital increase, the bank will announce a full application of Basel II. “When banks are allowed to increase their capital, they will expand credit growth, provide capital to businesses to overcome difficulties, restructure operations, and welcome new opportunities after the epidemic is under control”, Mr. Tho said will add more orientation in the future.
The new regulations in Decree 121 will also help BIDV and Vietcombank to realize the plan to raise capital and improve CAR, complete 3 pillars of Basel II. Because although it currently meets Basel II, by the end of July, the CAR in the State commercial banks group applied under Circular 41 is only 9.56%, lower than 10.72% of the group of commercial banks. Regarding the plan to raise capital at Vietcombank, the leader of this bank said that Vietcombank plans to issue shares to pay dividends to shareholders in 2018 at the rate of 18%, and issue private shares with a 6.5% of charter capital for institutional investors with financial potential.
If these two plans are completed, Vietcombank’s charter capital may increase by more than 9,000 billion VND, up to a maximum of 46,176 billion VND. At the General Meeting of Shareholders in March 2020, BIDV shareholders approved a plan to increase charter capital by VND 6,230 billion (equivalent to an increase of 15.5%) to VND 46,432 billion by issuing shares to pay shares and offering shares to the public or private offering.
Although the numbers cannot be quantified, it can be affirmed that Decree 121 will help the door to increase capital of commercial banks with state capital more widely instead of being as narrow as before, reducing financial burden surname. With abundant financial capacity, commercial banks with over 50% of charter capital held by the State in the system of credit institutions continue to play the key role in providing credit capital for economic development in the coming time.
Source: ndh.vn – Translated by fintel.vn
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