Foreign investment crucial to Vietnamese banks in 2019: Moody’s
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Most Vietnamese banks fall short of international capital adequacy norms and have to focus on attracting foreign capital this year, Moody’s has said. The credit rating agency said in a release Monday that “the underdevelopment of the domestic capital markets” means the banks would have to look to foreign investors to meet the capital requirement of 8 percent of risk-weighted assets to cover operational risks.
Raising capital has been a struggle for Vietnamese banks in recent years. Major state-owned banks such as BIDV and Vietinbank have for long been making plans to increase charter capital but in vain.
BIDV, the second largest listed bank, has had charter capital of nearly VND34.19 trillion ($1.46 billion) unchanged since 2015.
Last November it planned to sell a 17.65 stake to South Korea’s KEB Hana Bank to increase it to over VND40.22 trillion ($1.73 billion), but the deal has not been consummated.
Vietinbank, the fourth largest listed bank, has seen its capital remain unchanged since 2014 at VND37.23 trillion ($1.59 billion).
Only Vietcombank, the largest listed bank in the country, last month raised VND6.2 trillion ($265.86 million) from selling a 3 percent stake to foreign investors, as part of its plan to ultimately sell 10 percent.
BIDV and Vietinbank had offered to pay its largest shareholder, the State Bank of Vietnam (SBV), the previous year’s dividends in stocks and not cash to increase their capital, but the central bank refused saying it needed the cash.
Moody’s added that the banks’ capitalization will strengthen this year because of stronger profitability and stable credit growth.
It said that Vietnamese banks last year achieved a higher aggregate return on assets for a second year running, registering a rise of 1.1 percent from 0.9 percent in 2017.
Aggregate net income for the banks rose 35 percent to VND70 trillion ($3 billion) in 2018 from the previous year, it said.
“For 2019, Vietnamese banks that Moody’s rates will achieve a further improvement in profitability, again because of wider net interest spreads and lower credit costs,” said Rebaca Tan, a Moody’s analyst.
“Credit growth will stay stable over the same period because of tighter control by the State Bank of Vietnam, and asset quality will improve further, as the banks continue cleaning up their balance sheets.”
Questions & Answers
Q.Why are Vietnamese banks being urged to attract foreign capital this year?
Why are Vietnamese banks being urged to attract foreign capital this year?
Vietnamese banks mostly do not meet international capital adequacy standards. They need foreign investment to reach the 8 percent capital requirement for risk-weighted assets, as their domestic capital markets are underdeveloped.
Q.Which of the major state-owned banks have struggled to increase their capital in recent years?
Which of the major state-owned banks have struggled to increase their capital in recent years?
BIDV and Vietinbank have had difficulties increasing their charter capital. BIDV's has been unchanged since 2015, and Vietinbank's since 2014, despite plans to raise funds.
Q.What prevented BIDV and Vietinbank from increasing their capital using dividends?
What prevented BIDV and Vietinbank from increasing their capital using dividends?
The State Bank of Vietnam, as their largest shareholder, refused their offer to pay previous year's dividends in stocks instead of cash. The central bank stated it required the cash.
Q.What is Moody’s prediction for the profitability of Vietnamese banks in 2019?
What is Moody’s prediction for the profitability of Vietnamese banks in 2019?
Moody's expects Vietnamese banks to improve profitability further in 2019. This is attributed to wider net interest spreads and reduced credit costs, along with stable credit growth and better asset quality.