...Large Capital Shortfall: Vietnam's Basel II implementation, scheduled for 1 January 2020, highlights the system's thin capital buffers that have diminished under rapid loan growth. Fitch Ratings estimates that Fitch-rated banks will require a capital infusion of USD4.1 billion (VND95 trillion, or 2% of GDP), assuming they target a minimum 8% Tier-1 capital ratio under Basel II by raising additional common equity, despite the 8% minimum total capital adequacy ratio (CAR) requirement. The total capital shortfall could increase to USD6.5 billion (3% of GDP) if banks were to raise their allowance coverage to 5.0% of gross loans and Vietnam Asset Management Company (VAMC) special bonds, from 2.3% at end-2017. We believe this is more commensurate with the higher problem-loan ratios...
