Vietnamese banks' strong lending dampens capital raising activities

Loan growth of about 20% is outpacing internal capital generation.

As lending by Vietnamese banks continue to strengthen with loans rising 6.16% in May, capital raising is expected to slow as a consequence of loan growth outperforming capital production, according to Moody’s Investors Service. 

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Strong lending momentum is buoying the system's loans close to the State Bank of Vietnam (SBV) full-year credit target of 17%.

After the cleanup of legacy problem assets from 2012, banks like Vietnam Technological and Commercial JSB and Vietnam Prosperity Joint Stock Commercial Bank have been issuing new shares whilst other issued shares as dividend payments in an effort to generate capital, observed Moody’s.

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.

However, this may pose a problem in the long run as capital in the banking system dries up. “Without new capital, we expect banks’ capitalization to decline as average loan growth of around 20% year on year outpaces internal capital generation,” the credit rating agency noted.

Banks are required to keep their capital adequacy ratio (CAR) from falling below the minimum level of at least 8% set by the SBV, in compliance with Basel II standards. The new requirement will kick into effect by 2020 when Basel II norms are applied to the banking system.