Pressure of Basel II pushes banks to increase charter capital

Accordingly, Viet Nam Prosperity Joint Stock Commercial Bank (VPBank) will increase its charter capital from from VND15.7 trillion ($690 million) to VND25.299 trillion ($1.111 billion).

Military Commercial Joint Stock Bank (MB)’s charter capital will be raised from VND18.15 trillion (US$799.56 million) to VND21.6 trillion (US$951.5 million).

Additionally, under the pressure to improve competitiveness and to also meet the conditions in Basel II standards, the needs to increase capital of banks increase sharply.

Basel II is the second version of the Basel Accord that introduces a series of approaches to control risks of credit, market and operation of banks rather than just focusing on credit like Basel I.

The requirement for capital adequacy ratio (CAR) of Basel II is still the same at eight percent; however, without the increase of charter capital, CAR of banks will become below the required level as the prescribed elements of market and operational risks now added to the denominator. 

CAR of the entire credit institution system by the end of February 2018 decreased by 0.25 percent compared to the end of 2017, of which, state owned commercial banks decreased by 0.16 percent and joint stock commercial banks reduced by 0.44 percent.

If the provisions of Circular 36 and Circular 06 in compliance with standards of Basel I were applied, the CAR of VietinBank at the end of 2017 was 10 percent but with Circular 41 (higher standard is Basel II), Vietinbank's CAR would only be eight percent.

Therefore, many banks want to increase their charter capital. For example, BIDV wants to increase their capital by $413 billion up to $1.9 billion.

Many small banks also plan to raise charter capital. OCB wants to grow up to $328 million, an increase of 50 percent or Nam A Bank wishes to increase their capital by 70 percent up to $219 million.

If successful, BIDV and Vietcombank will be the first two banks with charter capital exceeding $1.8 billion. VPBank and MB will rise to the fourth and fifth positions, respectively.

Banking groups with the charter capital from $438 million to $875 million will have some new names such as HDBank, ABBank, LienVietPostBank besides Sacombank, SCB, SHB, ACB, Eximbank and Techcombank.

Currently, Techcombank's charter capital is $481million but the bank plans to tripple its chartered capital as their equity capital is still abundant.

Nguyen Le Quoc Anh, CEO of Techcombank, said that $1.8 billion of equity capital is very large compared to other private banking group.

Techcombank is expected to convene an extraordinary shareholder meeting on June 14 to approve the plan to increase its charter capital to three times.

The share price is offered at $5.6 per share. Accordingly, Techcombank is expected to raise its charter capital up to $923 million and expects market capitalization of $6 billion after listing.