National Assembly delegates recommend Big 4 banks proactively increase charter capital

Outstanding debt at "Big 4" accounts for about 45% of total outstanding debt of the economy.

It is expected that on November 30, the National Assembly will vote to pass the Resolution of the 8th Session of the 15th National Assembly, including the content on: the policy of investing additional state capital at the Joint Stock Commercial Bank for Foreign Trade of Vietnam (VCB).

Previously, on October 23, Deputy Prime Minister and Minister of Finance Ho Duc Phoc, authorized by the Prime Minister, presented to the National Assembly a report on the policy of investing additional state capital at Vietcombank.

Accordingly, at this time, the Government proposes to allow the use of the remaining profit after tax, after provisioning to increase charter capital through the form of paying dividends in shares. With this plan, the profit to be distributed to State shareholders in shares is VND 20,695 billion (rounded). This is considered the additional investment of State capital in Vietcombank.

At the discussion session in groups within the framework of the 8th Session of the 15th National Assembly, delegate Hoang Van Cuong (National Assembly Delegation of Hanoi City) agreed with the policy of investing additional state capital in Vietcombank according to the Government's proposal to ensure the capital adequacy ratio (CAR) for the bank.

According to Mr. Cuong, CAR = Equity/(Total Risky Assets) x 100%. In which, equity includes charter capital and remaining profit after tax, after provisioning.

“The after-tax profit can be distributed immediately to shareholders, including state shareholders, but if it is distributed, the shareholders will enjoy it. If it is not distributed but converted into charter capital, it will become the bank's fixed capital. Currently, more than half of Vietcombank's equity is not in fixed capital but in accumulated profits. Thus, the bank's CAR is not sustainable. If the accumulated profits are not converted into fixed capital, the budget will need to mobilize that amount of money next year, so the CAR will decrease,” said delegate Hoang Van Cuong.

Delegate Pham Duc An (National Assembly Delegation of Hanoi) added that "total assets with risk" is the total outstanding credit balance of each bank. According to international practice, the charter capital must account for the majority of the banks' equity capital for the capital buffer (CAR) to be guaranteed.

Currently, outstanding loans at 4 state-owned banks (big4) account for nearly 45% of total outstanding loans in the entire system, but charter capital is much lower than that of joint stock commercial banks, whose outstanding loans are only half that.

“Vietcombank is one of four commercial banks with state-owned capital. The outstanding loans of these four banks account for nearly 45% of the total outstanding loans of the entire system; they play a leading role, always taking the lead in implementing the Party's policies and the policies set forth by the Government; they are a very important tool of the State Bank in regulating the monetary market, but their charter capital is lower than that of joint-stock commercial banks with much smaller outstanding loans,” Mr. An said, giving an example of VPBank currently having a charter capital of up to 79.4 trillion VND; the highest in the system, while Techcombank is second with a charter capital of about 70.4 trillion VND.

“As Agribank is a 100% state-owned bank, every time it makes a profit, it pays it into the budget every quarter, while joint stock banks are allowed to keep undistributed profits. For example, currently, the outstanding debt of each bank in the Big 4 group is about 1.5 million billion VND, if it grows 10-15% each year, it must increase its capital every year. According to current regulations, any state capital investment of over 10,000 billion VND must be submitted to the Government and the National Assembly for discussion and approval, which takes a lot of time,” Mr. An said and proposed to form a mechanism that allows banks to proactively increase their charter capital if they operate effectively to ensure safety.

Delegate Hoang Van Cuong agreed with delegate Pham Duc An that current regulations should be considered and reviewed for cases where banks in particular and state-owned enterprises in general must request an increase in charter capital from accumulated profits.

“When a business makes a profit, they decide to increase capital based on the Resolution of the General Meeting of Shareholders. In the future, when amending the Law on State Capital Investment in Enterprises (Law 69 - PV), this provision must be studied and amended,” delegate Hoang Van Cuong recommended, saying that if every time a state-owned commercial bank increases capital by more than VND10,000 billion, it must go through the current procedures, which is too cumbersome, wasting time and resources.

(Source: VnEconomy)

Link: https://vneconomy.vn/dai-bieu-quoc-hoi-kien-nghi-cho-phep-ngan-hang-thuong-mai-co-phan-nha-nuoc-chu-dong-tang-von-dieu-le.htm

Source: https://vtcnews.vn/national-delegate-convenes-conference-for-big-4-banks-increase-regulation-von-ar904431.html