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Analyst Pin-board VCB – Impact of a potential capital issuance

Vietcombank was approved to make a private placement in 2020-2021 of up to 6.5% of chartered capital to raise funds for future growth and to meet capital requirement (CAR Basel II). Prior to this, Vietcombank reported a CAR of 10.1% in 6M2020, which is higher than the average level of SOBs but still lower than that of private banks. VCB’s CAR at 6M2020 was slightly higher than that at the end of 2019, partially due to a reduction of risk-weighted assets for credit risk. If it had not been the pandemic, potentially causing low loans and credit expansion, VCB would have been only able to sustain a CAR above minimum requirement until the end of 2020 based on the planned credit and asset growth. We think that although raising capital is not urgent as the current CAR is expected to be enough for another 1.5 year of credit expansion, a private placement is necessary for the bank to have a stronger capital buffer. However, the increase in shareholders capital, or deleveraging, could put pressure on ROE, which is one of the benchmarks for multiple valuation. We expect that earnings growth generated from raising capital (which leads to higher credit expansion limit) could reduce the impact of lowered efficiency. We also consider a raise in ROA due to a shift in the type of assets or change in risk appetite to be options VCB could use to support its ROE.