Vietnam banks need more capital—Fitch

HANOI—A ratings agency on Monday welcomed efforts by Vietnamese banks to beef up their capital buffers but said lenders may have to do more to shield themselves from losses amid the country’s economic troubles.

Fitch Ratings said Vietnam’s lenders are thinly-capitalized compared with their regional peers, although credit growth has eased this year and banks have received capital injections.

“Banks in general continue to target rapid growth in a country where credit reached 120 percent of GDP at end-2010, high by emerging market standards,” Mikho Irawady, of Fitch in Singapore, said in a statement.

“This exposes the banks to sharp deterioration in asset quality should the already difficult operating environment take a turn for the worse.”

Fitch said a greater buffer was needed to protect banks from potential losses, and allow for future expansion.

In the latest equity boost to a Vietnamese bank, Japan’s Mizuho Corporate Bank said on September 30 that it would buy a 15 percent stake in Vietnam’s largest bank by market capitalization, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank).

Several other overseas financial institutions hold strategic stakes in Vietnamese banks.

Analysts have expressed concern the amount of bad loans held by Vietnamese banks is higher than officially reported, and that the country’s struggling smaller financial institutions should be consolidated.

Long focused on growth, Vietnam in February shifted its attention to stabilizing an economy beset by double-digit consumer price rises, dwindling foreign reserves and a weakening currency.

Measures included raising key interest rates, vowing to cut state spending, and ordering that growth in credit stays below 20 percent.