Vietnamese banks grapple with $9b capital crunch as lending outpaces capital generation

Tier 1 Capital ratio could fall from 9.4% to 8% by 2019.

Although improving economic conditions is fueling credit demand, Vietnamese banks face risk from deteriorating capitalisation as international capital generation is failing to keep up with the rapid pace of lending which clocked in at 21% in 2017, according to credit rating agency Moody’s.

Vietnamese banks may need an additional $7b to $9b in capital just to achieve Tier 1 capital ratios of 11% in 2018 and 2019 whilst sustaining the strong loan growth rates.

“Without external capital, Moody's estimates that the Tier 1 capital ratio of the rated private sector banks will drop to 8.0% by the end of 2019 from 9.4% at the end of 2017, whilst that of the rated state-owned banks will drop to 6.1% from 6.9% over the same period,” the credit rating agency said in a statement.

State-owned banks will fare worse than their private sector counterparts as government embraces strategic investors even as their capital ratios continue to slip, observed Moody’s, In fact, asset-weighted average TCE ratio of state lenders fell from 6.92% in 2016 to to 6.89% at the end of 2017.

“Moody's views the state-owned banks as caught in a cycle, with capital shortfalls impeding growth, resulting in continuously inferior internal capital generation and ultimately weaker competitiveness.”

On the other hand, private sector banks may just be able to weather the capital crunch due to heavy investments in business growth and steady share offerings that have propped up its profitability outlook and internal capital generation.

The Vietnam Technological and Commercial JSB and Vietnam Prosperity Joint Stock Commercial Bank have been issuing new shares, Moody's said in an earlier report.

Similarly, the Vietnam Prosperity Joint Stock Commercial Bank (VPBank) and Military Commercial Joint Stock Bank (MBBank) earlier received central bank clearance to raise their charter capital to $1.10b and $942.84m respectively.

Reaching the people who run Asia's businesses is harder than it used to be.

Inboxes are crowded. Attention is short. The executives you most want to reach — the founders, CFOs, and operators who actually move budgets — are the hardest to find through the usual channels. If you're building a company, a category, or a reputation, you already know this.

We've spent twenty years building the room they read. Singapore Business Review is where senior decision makers in Singapore and across Southeast Asia come for business coverage they can't get elsewhere — in print, online, and in person at the summits and roundtables we host across seven markets.

If you have something these readers should know about — a point of view worth publishing, a product worth their attention, an event worth their time — we'd like to hear what you're trying to do.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia