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Small banks have trouble with recapitalization
Several small-scale commercial banks are now facing a huge test as how to increase their chartered capital to at least VND3 trillion by the end of this year since State-owned shareholders will unlikely pump more capital into these banks.
An unidentified bank employee unstraps a stack of Vietnamese banknotes. Several small commercial banks find it hard to meet the chartered capital requirement of at least VND3 trillion by the year-end as their State-owned shareholders may not inject more capital into them as earlier planned. (Photo: SGT)
Many small banks have relied on State-owned shareholders, and they have built their recapitalization plans on pledges by these shareholders to inject more funds to maintain their stakes. However, a recent decision by the Government to restrict State-owned corporations from investing outside their core business operations and to withdraw their capital from non-core businesses has put many small banks under tenterhooks.
The State Bank of Vietnam has so far approved recapitalization plans by about 16 out of 21 banks with chartered capital less than the required VND3 trillion. However, many of these banks will have to redo their plans.
Nam Viet Commercial Bank (Navibank), for example, must be thinking laboriously now to seek new funds as Vietnam Textile and Garment Group (Vinatex) finds it difficult to contribute more capital as pledged. Vinatex, which holds an 11% stake in Navibank, has not earned the Government’s blessing to continue investing in the bank.
Vu Duc Giang, CEO of Vinatex, told the Daily on Monday that the Government had not permitted the company to contribute more funds into this bank. Furthermore, “in the future, if the Government asks Vinatex to withdraw capital from Navibank, the corporation must do it,” he said on the phone.
It is reported that Navibank has got approval from the central bank to increase capital from VND1 trillion to VND3.5 trillion. To realize the scheme, the bank will issue 98.9 million shares to existing shareholders in the first phase, then sell 148.35 million shares to existing shareholders in the second phase.
However, this capital raising plan will not work if the big shareholder Vinatex does not participate.
Another case is Vietcombank, which is 90% owned by the State. This bank has also invested in other banks such as Gia Dinh Bank and Orient Commercial Bank, and now is rethinking its strategy.
Nguyen Hoa Binh, chairman of Vietcombank, told the Daily that the bank would not invest more capital to maintain its ownership of 19% in Gia Dinh Bank when the bank issues shares to increase capital from VND1 trillion to VND3 trillion.
Binh said for the long term, the bank would not invest more or even divest capital from other commercial banks due to consideration of business efficiency.
It is unlikely that Vietcombank will pump more capital into financial investments as the Government has just injected more funds into the bank to increase its chartered capital by 33% in order that the bank meets the newly required capital adequacy ratio (CAR) of 9% as stated in Circular 13.
Ho Huu Hanh, director of the central bank’s HCMC Branch, said that almost all banks in the city had submitted their fund raising plans to the branch, but the success of those plans would not be ensured following the Government’s decision asking State-owned corporations to narrow down their outside investments.
If banks cannot realize their recapitalization plans by the end of this year, they must merger with each other or get disbanded in the future.
In its decision, the Government has dictated that State-owned corporations obtain approval from the Prime Minister before making decisions whether to continue pumping capital or not. The Prime Minister has assigned the Ministry of Finance to evaluate the effectiveness of State investments at commercial banks.
VietNamNet, SGT
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