Vietnamese banks eye offshore capital to meet Basel II regulations

Tien Phong Commercial Joint Stock Bank could seal Vietnam’s first USD-denominated note issuance.

Vietnamese banks could opt to seek offshore capital in the run for the country's upcoming Basel II regulations, Fitch Ratings said in a report.

The ratings agency noted media reports that small privately-owned bank Tien Phong Commercial Joint Stock Bank is mulling Vietnam’s first offshore Tier 2 bond offering by a bank through a USD denominated issuance. To date, Vietnamese banks’ issuances have been done in the local currency.

Also read: Vietnamese banks intensify capital raising activities as Basel II deadline looms

“However, the banking system faces substantial capital needs in the run-up to the adoption of Basel II standards, scheduled for 1 January 2020, which, by our estimates, could be as much as $20b,” Fitch said, noting that Vietnam’s immature capital market could be not yet ready to support such large capital demand.

Additionally, Fitch noted that banks are hindered by a 30% foreign-ownership limit, meaning that common equity is unlikely to form a large part of additional regulatory capital raised. “However, offshore issuance is likely to be confined to better-managed state-owned and private commercial banks,” Fitch said.

Also read: Vietnamese banks call for higher foreign ownership ratio ceiling

Local banks have been pinning their hopes on a reform that will boost the ownership ratio of foreign investors in a bid to plug capital shortages.