Currently, only three banks have completed Basel II with credit room issued by the State Bank of Vietnam (SBV). So, how many banks are they looking forward to loosening credit room in 2019?
Currently, credit room is seen as a “knot” in credit growth and profit with many credit institutions.
LienViet Post Joint Stock Commercial Bank (LienVietPostBank) was a typical case. In 2018, this bank was not allowed to extend credit room by SBV, accordingly, the bank’s management decided to reduce the pre-tax profit target for 2018 by 33 percent from 1,800 billion dong to 1,200 billion dong and reduce the minimum dividend from 12 percent to 10 percent at the same time.
In addition to the business results, LienVietPostBank also reduced many targets on the balance sheet, in which the bank decreased 10,000 billion dong in total assets and capital mobilisation of market one, while outstanding loans to market one as of 2018-end was 117,557 billion dong, down nearly 6,000 billion dong compared to the original target.
According to Nguyen DinhThang, LienVietPostBank Chair, the adjustment of the business targets was resulted from two main reasons: SBV did not grant more credit growth targets and the network expansion increased the cost.
In 2018, some banks had been raised credit growth targets such as Vietnam Technological and Commercial Joint Stock Bank (Techcombank) from 14 percent to 20 percent, equivalent to the amount of 6,000-8,000 billion dong more to lend at the end of year 2018.
In Vietnam Prosperity Joint Stock Commercial Bank (VPBank), SBV approved its credit growth higher than 15 percent thanks to the bank’s strong capital base, after having a capital increase of 64 percent in the year to 25,300 billion dong.
In some other banks, after their credit room was loosened, they adjusted some balances in operations, oriented to the new credit growth target of 17 percent instead of 15 percent assigned at the beginning.
Since the beginning of 2018, SBV actively controlled credit growth limits, with specific allocation targets for each commercial bank, at a relatively low level of 14 percent -16 percent.
Priority granted to the banks meeting Basel II standards
Being the first banks to meet Basel II standard, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam International Joint Stock Commercial Bank (VIB) and Orient Joint Stock Commercial Bank (OCB), SBV has granted a more “open” mechanism to credit room. Meanwhile, other banks are still waiting for SBV’s approval.
Thus, in addition to the above three banks, if other banks meet the requirements set out in accordance with Basel II standards, SBV will consider loosening the credit room in 2019.
According to Nguyen Thi Hong, deputy Governor of SBV, when banks meet Basel II standards, not only individual credit institutions, but also the whole system will achieve stability. “In the near future, SBV will drastically direct this goal to meet Basel II standards before 2020,” she said.
Nguyen Quoc Hung, director of SBV’s Credit Department, said that some banks would like to loosen growth targets based on the needs and actual operation situation of the system. In 2018, the credit of the banking system increased by about 12 percent compared to the expected annual growth of about 15 percent.
“In 2019, there is still room for credit growth. Specifically, for banks that have demand for credit growth focusing on production, business, import and export of small and medium enterprises and rural agriculture, SBV will consider to grant more credit room for them. SBV will examine each case based on actual needs to meet market capital demand”, Hung continued.
Dr Can Van Luc, a financial and banking expert, shared that only well-performed banks that had low NPLs, high profits, expanded networks, good financial resources and no mistakes in the past would have chance of credit room loosening in 2019.