National Assembly approves increase of charter capital for Agribank

Earlier on June 8, the National Assembly listened to the brief presentation of the Government's Proposal and the Verification Report of the NA's Committee on Economic Affairs on the increase of the charter capital at the Bank for Agriculture and Rural Development of Vietnam (Agribank); conducted Group discussions on this matter. Accordingly, the Government has submitted to the National Assembly to put into the General Resolution of the 9th Session of the 14th National Assembly the following content: Approving to supplement the State budget expenditure estimates for 2020 in order to increase the charter capital of Agribank from the sources of increased revenues and the savings of the central budget spendings in 2019, which corresponds to the net profit after tax contributed by Agribank to the State budget in 2020, with maximum amount not exceeding VND 3,500 billion.

Contributing to improving people’s lives and developing agriculture   

During the plenary discussion, the Deputies all agreed with the need to increase Agribank’s charter capital. With Agribank’s important position and role in supporting credit for the development of agriculture, farmers and rural areas, the increase of its charter capital not only ensures the capital adequacy ratio and enhances the financial capacity of the bank, but also is a pervasive factor, contributing to the socio-economic development and the implementation of poverty reduction policies, especially in the context that the economy has been negatively affected by the Covid-19 pandemic. Deputy Tran Hoang Ngan (the delegation of Ho Chi Minh City) pointed out four important points in this regard: First, contributing to increasing the minimum capital adequacy ratio for a commercial bank. Second, helping to increase the banks’ resilience in the context of market fluctuations and unusualialities. Third, helping to increase capital mobilization, thereby extending credit to this bank. Since 70% of Agribank's borrowing clients are involved in the sectors of agriculture, farmers and rural areas, the increase of its charter capital will contribute to improving the people’s lives and developing the agricultural sector. Fourth and also most importantly, the additional spending of VND 3,500 billion is not an expenditure for consumption but rather an investment spending, and thus it is necessary to take into consideration the economic performance factor.

Agribank's 2019 auditor report shows that the total assets of this bank compared to its inception in 1988 has increased 1,000 times, profit before tax reached over 13,000 billion VND, net profit after tax was over 11,000 billion VND. With a charter capital of 30,000 billion VND, such net profit was quite high. In 2019, Agribank's budget contribution was over VND 6,000 billion. Therefore, it is possible to confidently support the capital increase.

The Deputies unanimously support providing credit for "tam nong"

Deputy Luu Binh Nhuong (delegation of Ben Tre) commented that the State has "4 children" in the banking sector, each bank is in charge of a different field, but Agribank is the one closely linked to farmers, agriculture and rural areas.

He said that in the Government's report from the beginning of the 9th Session, it was confirmed that in the wake of the Covid-19 pandemic, the value of Vietnamese agriculture has been proven. And not only in Vietnam but also the whole world. “So investing in agriculture is smart investment,” he said. “Currently we are also implementing the national target program, which aims at promoting development investment for the ethnic minorities and the mountainous areas.”

All these matters need the leadership and robustness of the whole political system, including Agribank’s role of a credit provider. And the charter capital increase for Agribank is actually the utilization of the budget through credit flows to support agriculture and rural areas. This is a form of humanity development investment and is absolutely necessary.

“Agribank is a bank closely linked to farmers, agriculture and rural areas”

Deputy Ta Van Ha (delegation of Bac Lieu) said that this is a commercial bank with 100% state owned charter capital. Increasing the bank’s charter capital also means increasing policies for agriculture, farmers and rural areas. In addition, investments into this bank have been highly effective - “one quarter investment for a dollar profit”. It is expected that the charter capital increase for this bank will help to generate a revenue between 900-1,000 billion VND of corporate income tax in 2021, so it is very effective. “Increasing capital for the banks will help increase their financial capacity, helping banks to increase their competitiveness and credit ratings in the system,” Mr. Ha stressed.

Agreeing with the Government's Proposal on the charter capital increase for Agribank, Deputy Vu Thi Luu Mai (delegation of Hanoi) also commented further on the policy of using the State budget to increase charter capital for the commercial banks. Mrs. Mai said that in the credit institution system, there are 04 critical commercial banks of which the State owns the majority shares, namely: Vietcombank, Vietinbank, Agribank and BIDV; among them only Agribank is 100% state-owned. Currently, all four banks are facing pressures to ensure capital adequacy ratios in accordance with Basel II standards. Out of these 04 banks, only Agribank has been considered in the direction of supplementing its charter capital from the State budget, while the remaining banks are considered to increase the percentages of profit reserved to increase their capital, or mobilize resources from outside investors.

According to the Deputy Vu Thi Luu Mai, in terms of policy, it should be clearly stated that Agribank’s case is only the consideration of supplementing the charter capital to a specific commercial bank, not a policy change in the direction of using the State budget to supplement capital for state-owned commercial banks.

In answering the concerns of the National Assembly Deputies on the legal basis for Agribank’s charter capital increase, SBV Governor Le Minh Hung said that Agribank is qualified for charter capital supplementation from the State budget as it is a 100% state-owned enterprise. The State's additional investment in Agribank’s charter capital is implemented in accordance with the provisions of Law No. 69/2014/QH13 dated November 26, 2014 on the management and utilization of state capital invested in the enterprises’ manufacturing and business operations and other legal guidance documents. Agribank is a state-owned commercial bank providing credit to the economy, especially in the field of agriculture and rural areas with large investment capital, creating a momentum for the rapid development of various sectors and fields in the economy. This is also a bank with stable growths and increasing profitabilities over the years.

However, the National Assembly's Resolution No. 25 stipulates that State budget will not be used to provide charter capital to commercial credit institutions. Therefore, concerning the supplementation of Agribank’s charter capital from the State budget, the Government must report to the National Assembly; and after the National Assembly has reviewed and approved the move, the Government, the Prime Minister will direct the SBV and the relevant ministries to carry out the procedures, sequences and prepare necessary documents for raising the capital in accordance with the provisions of law.

Responding to the Deputies’ concern over the urgency of the capital increase for Agribank, and how it affects the State budget, whether the time of the capital increase is appropriate or not,... Governor Le Minh Hung of the State Bank of Vietnam (SBV) said, recently the Government and the SBV has instructed Agribank to synchronously implement many measures to increase its capital and improve the capital adequacy ratio, such as restructuring its assets towards controlling the growth of risky assets and gradually increasing the proportion of high-security assets, as well as divesting from inefficient capital contributions, supplementing maximum capital from bond issuances,...

However, according to the current regulations, the maximum ratio of bonds to be included in tier 2 capital compared to tier 1 capital is 50%. While at present, the size of Agribank's bonds eligible to be counted into Tier 2 capital is already nearly 25,000 billion VND, or about 49% in line with the regulations. Therefore, the possibility to issue more bonds in the near future is very limited.

In addition, the proportion of risky assets over total assets in 2018-2019 also dropped sharply. Since 2017, the SBV has instructed Agribank to divest from non-core investments; so far about 358 billion VND of Agribank’s investments has been divested and approximately 500 billion VND has been collected. Thus, the remaining capital to be divested by Agribank is not much; not to mention, it depends heavily on the market conditions, even if divestment takes place, the collected amount will not meet the demand.

Regarding the measure to increase capital from equitization, the Governor said, under the directions of the Government, over the past, the SBV has worked closely with the Ministry of Finance to direct Agribank to implement measures to equitize in accordance with the Government's regulations. However, the current biggest obstacle is that Agribank has a too large scale in terms of network, geographical area coverage, with over 2,300 branches and transaction offices. “Currently, there are still a number of estate properties that have not been approved by the Ministry of Finance. Therefore, we have not been able to issue a decision to equitize Agribank. At present, we will continue to coordinate with the Ministry of Finance to get approval for the estate properties as a basis for implementing the next steps of Agribank’s equitization,” the SBV Governor said.

Concerning the measure to increase capital through equitization and retaining profits as some Deputies mentioned, Governor Le Minh Hung said that Agribank cannot implement this regulation like VietinBank, Vietcombank or BIDV, because it is a 100% state-owned bank. Under the current laws, 100% state-owned enterprises shall contribute all of their profits to the State budget after all provisionings.

Therefore, the Governor said that, despite synchronous implementation of such measures, so far Agribank still needs the State’s support to supplement its charter capital in 2020 in order to meet the capital adequacy ratios as prescribed and ensure its operational safety, as well as ensure its ability to provide capital for the economy. The Governor also stressed that, calculated in accordance with the new standards prescribed in Circular 41/2016/TT-NHNN, as of March 31, 2020, Agribank's capital adequacy ratio was only 6.9%, not meeting the minimum required ratio of 8%. And if applied under the old regulations, Agribank's capital adequacy ratio is only 9.2%, which is just slightly above the minimum level of 9%. Therefore, if its charter capital could not be increased, Agribank would only be able to increase its outstanding loans by about 4.5% for the whole 2020, and thus its ability to provide capital for agriculture and rural areas will be greatly affected.

"In the context of the current pandemic, Agribank expects to spend 100,000 billion VND to support the production for the affected agriculture and rural areas. For this reason, Agribank's credit growth this year will be at least 11%, and in that case the capital adequacy ratio of Agribank will be just 7.9% - not meeting the required minimum ratio. Even when maximizing the capital raising measures as recommended by the National Assembly, Agribank's demand for additional capital is still estimated at 3,500 billion VND. This is also the basis for the Government to have proposed an additional amount of 3,500 billion VND for Agribank in 2020," said SBV Governor Le Minh Hung.

In his conclusion, Mr. Uong Chu Luu - Vice Chairman of the National Assembly stated that after the discussions, the National Assembly has agreed on the need to supplement charter capital for Agribank. Most of the National Assembly Deputies have agreed to include in the General Resolution of the 9th Session the wordings of “approving to supplement the State budget estimates of 2020 the increase of charter capital for Agribank from the sources of increased revenues and savings from central budget spendings of 2019, which corresponds to the net profit after tax contributed by Agribank to the State budget in 2020, with maximum amount not exceeding 3,500 billion VND.

VA