According to the latest statistics of the State Bank of Vietnam (SBV), by the end of February 2018, the total assets of the system of credit institutions (CIs) unexpectedly fell by 70 trillion dong compared to the beginning of the year to 9,930 trillion dong. The equity of the banking system also fell by 0.63 percent, equivalent to a decrease of over four trillion dong.
Notably, this decline largely came from Vietnamese commercial banks. Specifically, the assets of state-owned banks decreased by 21.254 trillion dong and of joint stock banks decreased by 49.749 trillion dong. The equity of state-owned banks dropped by 7.511 trillion dong and of joint stock banks dropped by 3.217 trillion dong.
Dr Dang Anh Tuan, deputy director of the Institute of Finance and Banking (National Economics University) said that although statistics of the SBV showed that credit grew by 1.37 percent and deposits of people grew by 4.22 percent but there was a reduction in the deposits of economic organisations (2.81 percent) and the proportion of cash in circulation in the total means of payment also increased in the first two months of the year. Statistics of SBV have not eliminated the valuable papers purchased by other domestic CIs.
Dr Tuan explained that the decline in total assets and liabilities may come from (1) the increase of the use of cash in payment of enterprises and economic organisations before and after the Lunar New Year holiday, and (2) the decrease in the mutual borrowing among CIs.
“If the decrease in mutual borrowing among banks was for restructuring lending and investment activities of banks, it will have a positive impact in the long term; but it is normal in the economy if the fluctuation of mutual borrowing among CIs led to the seasonal decline in total assets of the banking system”.
Regarding equity, it is considered as the last one in the chain of defence of each bank. Although it is small, it plays a very important role. According to Dr Dang Anh Tuan, banks’ equity will reduce the safety in operation of banks and banks’ risk tolerance will also be weakened.
The reduction of equity led to the further decline of banks’ Capital Adequacy Ratio (CAR). The CAR of the system fell from 12.23 percent in late 2017 to 11.98 percent in late February 2018. In particular, the CAR of state-owned banks dropped to 9.36 percent while that of joint stock banks was 11.03 percent.
The equity of commercial banks includes charter capital, retained profit and other funds, which often follow an upward trend as banks continuously accumulate throughout their operation. Thus, what led to the equity decline in the first two months of the year and is it a matter of concern?
The decline of equity may come from different reasons, such as the fall of profit, business losses, payment of dividends or decrease of Tier-2 capital (some long-term valuable papers matured), etc. For joint stock banks, paying dividends may be the main reasons as two banks paid cash dividends in the first two months of the year at a fairly large value, including Military Commercial Joint Stock Bank (MB) which made the first dividend payment at one trillion dong, and Vietnam International Commercial Joint Stock Bank (VIB) distributed dividends at 750 billion dong.
Meanwhile, the equity of state-owned banks saw stronger decline (7.5 trillion dong). This group includes seven banks, but only Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) regularly report their information (as being joint stock banks). The remaining banks including Commercial Joint Stock Bank for Agriculture and Rural Development (Agribank), Ocean Bank, GPBank and Construction Bank (CBBank) rarely disclose financial indicators. Specifically, since the three joint stock banks in the group have not distributed dividends in the first quarter of 2018 and recorded fairly good profit, the biggest possibility is that Agribank has paid a large amount of profits to the state budget, or the reasons may come from Ocean Bank, GPBank, and CBBank.
In fact, the reduction of total assets and equity in the banking system is not rare, but it is the first time in the past two years. Updates of the indicators in the first quarter financial statements announced by banks pointed out that most banks recorded total asset and equity increase compared to late 2017. Thus, this situation perhaps is only short term and not yet a negative issue.
