December 12, 2019 13:33

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Banks restructure capital to adopt Basel II

09:11 | 12/10/2019

VCN- In order to meet Basel II standards, it is difficult to raise Tier 1 capital (equity capital),so bankshave to find ways to increaseTier 2 capital.

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Impossible not to raise capital

According to the standards of Basel II, banks have to implement three main pillars: minimum capital adequacy ratio (CAR) of 8%, supervision of management agencies and information disclosure in banking management. This is considered a great challenge for the banking industry. Mr. Peter Verhoeven, CEO of financial advisory company 6 Sigma, said that banks around the world faced this challenge, so the commitment of leadership is needed to orient the departments and divisions of banks.

According to experts, the implementation ofcapital norms under Basel II requires huge financial resources – about US$10-15 million. This is a huge challenge because many Vietnamese banks are small.Therefore, the banks have to make efforts to increase equity capital, such as issuing long-term deposit certificates to increase Tier 2 capital,not dividing dividends to supplement equity capital, increasing charter capital in the form of dividend payment, or issuing more shares to existing shareholders. RegardingTechcombank, althoughthe total assets of the bank reached more than VND320,900 billion by the end of 2018, up 19.2%,during the last shareholders’ meeting, the bank continued not to dividedividend to supplement equity capital.

Raising capital is very important to access Basel II. Like BIDV, this bank was also selected as one of the Basel IIpilot banks. But while "peers" are up to the standard, this bank has not been approved yet because it does not meet the capital standard.Therefore, BIDV had to promote selling capital to foreign investor KEB Hana Bank with a price of US$882 million and it is expected that in the third quarter, it will complete the capital raising process to be able to apply Basel II this year.

Control virtual capital increase

Facing pressure, many banks had to find otherways to increase capital, such as cross-buying bonds or restructuring existing asset portfolio. Instead of lending to high-risk portfolios such as real estate, this restructuring is doneby banks aimed at low-risk portfolios,use effective risk mitigation measures such as management for security property.Therefore, some banks may not take action to raise capital,but restructuring of asset portfolio and managing security asset are recorded to minimize risks and reduce capital demand with these asset portfolios.This approach is beneficial for small banks because it is easy to change the portfolio.

Besides, for cross-buying bonds among credit institutions, many worriedthat this situation would cause cross-ownership. According to Ms. Tran Thi Thu Hang, representative of the State Bank's Banking Inspection and Supervision Agency,the State Bankhad many solutions to handle cross-bond ownership or increasevirtual capital in the banking system.The amendments and supplements to some articles of Circular 36/2014/TT-NHNN, stipulating limits and prudential ratios in operations of credit institutions and foreign bank branchesraised many measures, such as the contribution of capital to other credit institutions would be restricted to only 5% and not more than 2 credit institutions, or the bank's holding for capital or bonds of other credit institutions to increase Tier 2 capital would be also deducted directly from capital.

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In the context that many banks are strugglingto complete Basel II standards, experts said that the management agency needs to accelerate the approval of foreign strategic investors. PhD. Can Van Luc,an economic expert, assessed that calling for foreign investment capital was considered to be the quickestway andbringhigh value. In addition,with banks under special control, the representative of the SBV said thatthey would be allowed to take a long time to raise standards, but they will be subject to strict terms andregulations onhigher risk coefficients.

By Huong Diu/Binh Minh