Average Equity Capital of Commercial Banks in the Period 2010-2015

Group 1 includes the following banks: BIDV, Vietcombank, Vietinbank. This is a group of banks that grew from State-owned commercial banks. In this group of banks, Vietinbank is the bank with the largest total assets, specifically in the years 2010-2015, respectively: 367,712 billion VND; 460,603 billion VND; 503,530 billion VND; 576,368 billion VND; 661,241 billion VND; 779,438 billion VND. With such a huge total asset, the liquidity, liquidity and conditions to improve liquidity of these banks always have an advantage over banks in groups 2 and 3. Group 2 includes the following banks: ACB, MB, Eximbank, Techcombank, Maritimebank. These are banks with long-standing prestige and brands in the banking sector. Leading this group is ACB. With a very small initial human resource, ACB has now risen to occupy a fairly large market share in the Vietnamese commercial banking system with specific total assets over the years 2010-2015 respectively being 205,102 billion VND; 281,019 billion VND; 176,307 billion VND; 166,598 billion VND; 179,609 billion VND; 201,456 billion VND. Group 3 is the last group of banks. In which SGB and PGBank are the two banks with the lowest total assets. Thus, the liquidity of banks is also ranked in descending order from group 1 to group 3. To compete in the market, banks in groups 2 and 3 need to have effective business strategies to attract investors and shareholders.

3.2.1.2. Equity situation of commercial banks

Equity capital provides resources for banks to operate during the initial period of operation. At the same time, it is a stable source of capital and always grows during the operation of the bank. It accounts for a small proportion of total business capital (usually from 10% to 15%). However, it plays a very important role because it is the basis for forming other sources of capital for the bank, creating initial prestige, maintaining public trust in the bank. Equity capital determines the scale of operations of the bank, is a factor for management agencies to rely on to determine safety ratios in banking business (Capital mobilization limit, lending limit, investment limit in fixed assets) (Tran Huy Hoang, 2011).

In terms of equity capital of banks in the period from 2010 to 2015, BIDV, Vietcombank, Vietinbank are the banks with the largest equity capital among the 22 commercial banks studied in the scope of the topic. These are banks with the majority of state capital. The liquidity of these banks is often guaranteed, the possibility of bankruptcy is almost non-existent. Next in line are banks such as ACB, Eximbank, MBbank. These are banks with brands in the market. Banks such as KienLongbank, NamAbank, Saigonbank are the banks with the lowest equity capital. These banks need a breakthrough strategic vision to compete in the banking sector.

unit: trillion dong

0 5 10 15 20 25 30 35 40 45

5.3

12.3

ABBank

ACB

BIDV

				30.7
Vietinbank					41.1
Eximbank				14.6
HDBank		6.5
KienLongBank	3.4
LienVietBank		6.7
MBBank				14.9
Maritime Bank			9.6
NamABank	3.1
NVB	3.0
OCB	3.8
PGBank	3.0
SeABank		5.7
SGB	3.5
SHB			8.6
Techcombank				13.4
VCB				37.1
VIB			8.0
VietABank	3.6
VPBank			8.0

Maybe you are interested!

Figure 3.2: Average equity capital of commercial banks in the period 2010-2015

(Source: Financial reports of 22 commercial banks in 2010-2015)

3.2.1.3. Capital mobilization activities of commercial banks

Capital mobilization is one of the main and most important activities of commercial banks. This activity provides capital for banks to carry out other activities such as granting credit and providing banking services to customers. Looking at the balance sheet of commercial banks, we see that capital mobilization is reflected in the Liability asset side. Therefore, capital mobilization is also called Liability asset business. (Nguyen Minh Kieu, 2007)

Looking at the data, we see that the leading banks are still BIDV, Vietinbank, Vietcombank. Of which, BIDV is the highest with mobilized capital in the period of 2010-2015 respectively being 341,898 billion VND; 381,158 billion VND; 458,081 billion VND; 516,093 billion VND; 616,734 billion VND; 808,334 billion VND. The lowest are SGB, PGBank, Nam A Bank, VietABank.

Like total assets, capital mobilization capacity also shows the strength, brand and liquidity of the bank.

unit: trillion dong

0 100 200 300 400 500 600

ABBank

	47.3
ACB					189.4
BIDV						520.4
Vietinbank						517.1
Eximbank				142.2
HDBank		64.2
KienLongBank	16.4
LienVietBank		67.5
MBBank				156.1
Maritime Bank			99.7
NamABank	22.1
NVB	26.7
OCB	28.5
PGBank	18.4
SeABank		73.7
SGB	12.4
SHB			117.4
Techcombank				159.5
VCB				431.1
VIB		74.9
VietABank	25.7
VPBank			112.6

Figure 3.3: Average capital mobilization of commercial banks 2010-2015

(Source: Financial reports of 22 commercial banks in 2010-2015)

3.2.1.4. Lending activities of commercial banks

Lending is the most profitable activity for banks. For most banks, lending accounts for more than half of total assets and generates half to two-thirds of their revenues. At the same time, banking risks tend to be concentrated in the loan portfolio.

In terms of lending criteria, the leading banks are still the familiar banks BIDV, Vietcombank, Vietinbank. In this group, BIDV is the bank with the largest outstanding debt, specifically in the period 2010-2015, the bank lent out 248,898 billion VND; 288,079 billion VND; 334,009 billion VND; 384,889 billion VND; 439,070 billion VND; 590,917 billion VND respectively. The weakest lending banks are KienLongbank, VietAbank, Saigonbank. Thus, the lending activities of the 22 banks

In the research topic, the bank with strong financial strength has the largest lending capacity, the group of banks with the least outstanding debt is still weak banks with poor liquidity.

unit: trillion dong

0 50 100 150 200 250 300 350 400

22.8

107.1

381.0

365.6

262.3

39.3

14.5

55.8

ABBank

Vietinbank
Eximbank		77.1
HDBank	31.2
KienLongBank	11.0
LienVietBank	28.4
MBBank		80.4
Maritime Bank	29.0
NamABank	11.3
NVB	14.3
OCB	18.4
PGBank	13.3
SeABank	25.2
SGB	10.9
SHB		69.5
Techcombank		73.5
VCB

ACB BIDV

VIB

VietABank VPBank

Figure 3.4: Average loans of commercial banks 2010-2015

(Source: Financial reports of 22 commercial banks in 2010-2015)

3.2.2. Liquidity situation of Vietnamese commercial banks through financial indicators

With the analytical data source collected from the financial reports of 22 commercial banks in the period from 2010-2015, the study analyzes the situation of Vietnamese commercial banks through the following liquidity indicators.

o Minimum Capital Adequacy Ratio CAR

o Capital mobilization limit coefficient (H 1 index )

o Equity ratio to total assets (H 2 index )

3.2.2.1. Minimum capital adequacy ratio CAR

Minimum capital adequacy ratio CAR = Equity capital/ Total converted risk assets The State Bank of Vietnam has issued Circular 13/2010/TT-NHNN regulating the safety ratios in the operations of credit institutions. Specifically, credit institutions, except foreign bank branches, must maintain a minimum capital adequacy ratio of 9% between equity capital and total converted risk assets of credit institutions.

Figure 3.5: Minimum capital adequacy ratio CAR of 22 Vietnamese commercial banks

(Source: Financial reports of 22 commercial banks in 2010-2015 and author's calculations)

Through the chart above, in 2010 the average CAR of the group of 22 commercial banks was 10.68%, in 2011 it was 10.61%, in 2012 it was 11.43%, in 2013 it was 10.35%, in 2014 it was 9.3%, in 2015: 9.22%. The main reason for the decline in the CAR ratio of the 22 commercial banks is that these banks invested too much in high-risk items, causing the total risky assets of the bank to increase sharply.

Looking at Appendix 03, we see that the bank with the lowest CAR ratio is ACB in 2011, reaching only 4.3%. In 6 years, ACB, BIDV, SHB, Techcombank, Vietcombank, VPbank always have CAR ratios below 9%, not reaching the safety level according to the capital regulations. It seems that the more banks increase their asset size,

The safety level decreases. In addition, banks in group 3 are banks with high capital safety ratios. Banks with higher ratios mean that the bank will have a thicker buffer to protect itself from adverse fluctuations in the market. However, in the economic downturn, the CAR ratio no longer reflects the true safety level of banks. Because the collateral assets at most banks today are mainly real estate, with the rate of real estate price decline, the CAR ratio will decrease very quickly.

3.2.2.2. Capital mobilization limit coefficient (H 1 index )

H 1 = Equity / Total mobilized capital.

This coefficient is intended to limit the capital mobilization level of the bank to avoid the situation where the bank mobilizes too much capital, exceeding the protection level of equity capital, causing the bank to lose its ability to pay. According to the 1990 banking ordinance, the total mobilized capital of commercial banks must not exceed 20 times the equity capital. That means H 1 >=5% (Tran Huy Hoang, 2011).

Figure 3.6: Ratio of equity capital to total mobilized capital of 22 Vietnamese commercial banks

(Source: Financial reports of 22 commercial banks in 2010-2015 and author's calculations)

According to statistics of 22 Vietnamese commercial banks, in 2010 the average H1 index was 12.4%; in 2011: 12.2%; in 2012: 13.3%, in 2013: 11.8%; in 2014:

10.4%; 2015: 10.3%. The H1 index increased from 2010 to 2012, then decreased from 2013. This decrease may be due to the growth rate of equity capital being slower than the growth rate of mobilized capital.

Looking at Appendix 03, we see that some large commercial banks such as BIDV, VIETINBANK, ACB have quite low H 1 index . This shows that the ability to withstand risks when they occur is not high enough to match the size of large banks. Because equity capital is considered the basis for deciding liquidity when risks arise. Besides, some commercial banks have quite high H 1 index such as SGB, NamABank, KienLongBank. That may be due to the rapid increase in equity capital of the bank or temporary unused capital while mobilized capital is decreasing. However, a high H 1 index is not good because it shows that banks are having difficulty in mobilizing capital or are not effectively using idle equity capital.

3.2.2.3 Equity to total assets ratio (H 2 index )

H 2 = Equity/Total assets

This ratio is given to assess the risk level of a bank's total assets. Normally, the larger the decline in assets (due to the occurrence of risks) of a bank, the lower the bank's profits will be. Therefore, this ratio allows the bank's assets to decline to a certain extent compared to the bank's equity.

In the 1930s, conservative economists proposed a rule of thumb, namely that Equity/Total Assets should be at least 10%, however by the late 1940s, the H2 ratio was introduced by banks but with a minimum of 5%.

In Vietnam, the regulations on ensuring business safety for credit institutions were issued by the State Bank through Decision 107/QD/NH5 (June 9, 1992), requiring credit institutions to regularly maintain a minimum ratio of equity capital to total assets of 5%.

Comment