Vietnam will likely issue VND11 trillion (US$687 million) worth of government bonds in order to boost assets of banks, according to the State Bank’s draft plan to reorganize and equitize five state-owned commercial banks during 2006-08, a local newspaper reported.
Under the plan being circulated among the ministries for comment, the banks would receive an additional capital injection through the government bonds, which would be placed on the books of the banks in order to increase their asset level.
The capital injections are aimed to help the banks to reach the 8 per cent capital safety ratio required by international standards.
Dang Van Thao, deputy director of the State Bank’s Department for Banking Development Strategy, said that the bonds would be issued in accordance with market principles, with high liquidity so that the banks could receive a real recapitalization.
Three state banks to receive cash injections include the Industrial and Commercial Bank (Incombank), Bank for Investment and Development (BIDV) and the Bank for Agriculture and Rural Development (Agribank).
Two first bank will need to have their assets evaluated by the end of this year in order to be privatized in 2007, while the later will go public in 2008.
The pressure to maintain high credit growth in recent years has resulted in a very low capital safety ratio among the banks, Thao said.
To meet the required ratio, these three banks would have to raise VND25 trillion ($1.56 billion) in capital, VND12 trillion from their own efforts and VND13 trillion from the state funding, including VND11 trillion of government bonds and $99 million from World Bank soft loans, he said.
During 2002-2004, commercial banks were given trillions of Vietnamese dong in chartered capital to lower bad debt ratios, Thao said, noting that banks have maintained high credit growth without additional capital injections since 2004, resulting in a very small capital safety ratio, at about 2 per cent.
Banks have not complied with regulations for maintaining sufficient risk provision funds, with some banks running trillions of dong short of the required amount.
Incombank and BIDV still have very low levels of equity. Therefore, recapitalization would help the banks raise both their equity levels and capital safety ratios, resulting in higher credibility and high share price upon privatization, Thao said.
Two other state-owned commercial banks, the Vietcombank and the Mekong Housing Development Bank, would not get capital injections from the state, but raise capital by issuing shares in 2006 as part of their equitization schemes, he said.
VNS
Vietnamese
