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Moody's: Vietnamese banks will be short of capital in the next 12-18 months

Moody concluded that Vietnam's banking system may lack US $ 5.1-6.1 billion by the end of 2017, equivalent to 2.5-3% of GDP.

According to a new report released on May 8 by Moody's, Vietnamese banks will face a shortage of capital in the next 12-18 months. According to Moody's, lack of funds continues to be one of the major burdens for the banking sector in Vietnam, which is currently ranked at B1.

"Banks' rapid credit growth will widen the sector's capital gap over the next 12 to 18 months," Moody's analyst Daphne Cheng wrote in a report. In addition, credit growth will be 26% in the two years 2017 and 2018, not much change compared to 2016.

Moody's figures show that by the end of 2016, the banking sector in Vietnam has a capital gap of $ 9.5 billion, accounting for 4.6% of GDP. Moody's definition of the capital gap during this period was the amount of external capital required by banks to increase the Tier 1 capital ratio of the bank to 8% after using the financial provision to offset the provisions. For bad debts. At the same time, banks must write off a debt that will be written on all VAMC Vietnam bonds they receive from the government by swapping bad loans.

 


Moody's concludes that Vietnam's banking system may lack US $ 5.1-6.1 billion by the end of 2017, equivalent to 2.5-3% of GDP. This analysis by Moody's is based on the assumption that bad debt ratio of banks will remain stable, besides there will be no increase in VAMC's transactions. Another assumption Moody's mentioned is that the main income of banks will remain stable.

The final assumption in Moody's research is that the bank will depreciate the current VAMC bonds in accordance with the bank's current amortization schedule approved by the State Bank for five or ten years rather than one. Full recording

In that case, plus the assumption of no external support, the Tier 1 capital ratio of Vietnamese banks will fall to an average of 6.1% in the fiscal year ending 31/12/2017. This figure is 7.8% in 2016.

Conclusions on the capital differentiation of banks show that the government's strategy of relying on bank income to shrink capital shortages could be affected by both cyclical and structural constraints, This was due to high credit growth and recovery and then the weak financial situation of the government.

Mr. Cheng also stated in the report: "The ability of banks to grow is weak due to the modest net interest margin of the system, low income contributions, while the cost of capital is still very high. In these cases, it will take several years to make up for the system's lack of capital through the creation of internal capital. "

Moody's also pointed out that the bank's capital profile has continued to deteriorate. Specifically, at the end of 2016, Tier 1 capital of Vietnamese banks rated Moody's average 7.8%. Thus, this figure has decreased compared to previous years, from 8.5% in late 2015 and 10.7% in late 2013.

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