Improved bank standards will strengthen sentiment

Vietnam is implementing Basel III, an international regulatory framework for banks. Jien Hoong Chew, assistant vice president and senior analyst at Moody's Ratings, told VIR's Hong Dung about what this will entail.

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Compared to other emerging markets in ASEAN, is Vietnam moving faster or slower on the Basel III roadmap?

Vietnam’s adoption of Basel III is slower compared to other rated markets in ASEAN which are already on the Basel III framework, with some countries such as Singapore already started implementing final Basel III. For Vietnam, the gap is likely due to the fact that the buildup of bank capital buffers has remained modest over the past few years.

Despite the strong profitability of the banking sector, the accumulation of capital has been weighed down by high loan growth and asset quality challenges. This in turn gave limited flexibility for regulatory authorities to accelerate adoption, given the higher capital requirements and other criteria introduced by Basel III.

Will a segment of banks face the risk of growth limits due to an inability to meet capital standards in time?

The loan growth of state-owned banks has lagged behind most private commercial banks over the past few years due to their modest capitalisation, or the adoption of a more cautious approach in credit expansion, in the case of Vietcombank.

For BIDV, VietinBank, and Agribank, these banks will now be able to retain proceeds from any divestment of their government stakes, which will play a key role in strengthening their capitalisation. As a result, the stronger capitalisation from any successful raising of new equity capital from shareholders will be credit positive and will strengthen their ability to grow their loans.