Commercial banks raise charter capital as opportunities increase
Figures released by the State Bank of Vietnam and financial reports by commercial banks show that total charter capital of 35 Vietnamese commercial banks reached VND331.069 trillion by December 31, 2015.
Of this amount, seven state-owned banks (the banks in which the state holds the controlling stakes) have VND137.093 trillion, while 28 joint stock banks had VND193.976 trillion.
Seventeen out of 35 banks have announced plans to raise charter capital this year by VND50 trillion in total.
This means they want to increase the equity capital so as to be able to expand their business scope.
Banks’ charter capital levels determines the services they can provide.
The Circular 36 released in 2014 sets limits on banks’ limit in accordance with their equity capital: the minimum CAR (capital adequacy ratio) is 9 percent, while the credit provided to one client must not be higher than 15 percent of banks’ equity capital and the credit provided to a group of related clients must not be higher than 25 percent.
The circular also stipulates that banks must not use more than 40 percent of their charter capital and their reserve funds to contribute capital to other businesses.
As such, raising charter capital is a must for banks which want to expand their business operation.
Analysts said the 10 commercial banks chosen by the State Bank (SBV) to apply Basel II standards will have to raise their charter capital because of higher requirements in the calculation of CAR in accordance with Basel II.
SBV has decided that the pilot application of the 10 banks would be completed by 2018 and the Basel II application would be applied to other banks in the Vietnamese banking system as well.
A report shows that 12 commercial banks still have charter capital of VND3.5 trillion or lower, while six banks have charter capital of VND3 trillion, which is equal to the minimum legal capital required by the laws. With such modest charter capital levels, the banks would find it difficult to expand their networks.
Under Decree 57, credit institutions must not use more than 50 percent of their charter capital and their reserve funds to buy fixed assets. This prevents the banks with outdated technologies from spending more money to upgrade information technology systems to improve corporate governance.
Under Circular 21, the number of bank branches depends on banks’ charter capital. In Hanoi and HCMC, banks must pay VND300 billion at minimum to open a branch, while the figure is VND50 billion in other cities and provinces.