Finding out the answer to what the Car Factor is will be of great help to anyone studying or working in the commercial industry. Or else, it will be useful for all of us to know so that when we read or hear somewhere that the term car coefficient is mentioned, we will also know what it is.

Viewing: What is the car coefficient?

In the content of this article, Bich Phuong and readers will learn about the concept of car coefficient and the issues surrounding it.

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1. What is the car coefficient?

The CAR ratio in English is written as Capital Adequacy ratio, which means “capital adequacy ratio”. This is one of the economic indicators that carry value in clearly reflecting the close relationship between assets and own capital in commercial banks.

What is car coefficient?

The CAR coefficient is tied to the basel. That will cause confusion if you do not have any professional knowledge in the field of commercial banking. So to understand more about Car, let’s “surf” with Phuong a little knowledge about Basel.

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2. CAR coefficient in basel

Basel, which plays the role of a committee in charge of banking supervision, is among the top 5 committees holding extremely important functions of banks for international payments. At the same time, upon its establishment, basel acted as a customary committee and supervised the safety of all activities of the central bank, under the management of the governments of the 10 participating countries. group G-10.

CAR coefficient in basel

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In the 80s of the last century, international banks fell into a state of decline in capital ratios, and at the same time faced increasing risks, which were related to large debtor countries, supported by 10 member countries, so the Commission developed a capital measurement system that we call the Basel Accords.

The Basel Accord was born to fulfill the task of supplementing and perfecting in response to practical relevance.

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3. How is the CAR coefficient in Vietnam regulated by law?

Starting in 1999, the CAR coefficient was regulated for the first time in Vietnam in accordance with Decision 297/1999/QD-NHNN issued on August 25, 1999 (the Decision regulating the ratios in Vietnam). level to help ensure safety in all activities of credit institutions). In regulatory terms, the capital adequacy ratio needs to be at least 8%.

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At a time when the world went through and fell into a crisis, a prolonged recession, a series of large global banks fell into a state of collapse, in Vietnam, banks have provided credit in two areas: The securities and real estate sectors are too big. Since then, the State Bank has raised the capital adequacy ratio to 9%, higher than the previously issued general regulations. That means higher risk exposure to credit lines for real estate and securities businesses.

In Circular No. 13/2010/TT-NHNN, the formula for calculating capital adequacy ratio is based on two groups:

– Individual capital adequacy ratio will be equal to Equity/Total Risky Assets

– Consolidated capital adequacy ratio is equal to Consolidated Equity/Total Consolidated Risky Assets.

In the commercial banking system in Vietnam, listed shares for commercial banks have a position, a risk management process has been built to best implement the regulations of commercial banks. the best.

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4. What factors affect the CAR of commercial banks?

There are several factors that affect the CAR ratio in Joint Stock Commercial banks. Consists of:

First, the ROA ratio – the profitability of the asset. When the economic growth rate is high, it causes the ROAs of listed commercial banks to be increased, the risk of provision costs to be lower, and the credit activities of the banks. goods contain many risks. The credit growth was hot, the quality decreased, causing the bad debt ratio to increase, reducing the quality of assets.

Second, the factor of owner’s equity on assets has a very large impact on the CAR coefficient. The capital ratio has a positive relationship with the CAR coefficient. When this coefficient increases, the CAR coefficient also increases and vice versa.

In order to ensure the level of capital adequacy during operation and enhance the competitiveness of domestic commercial banks, the leaders of commercial banks quickly issued regulations on the issue of commercial banks. capital safety.

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Next, the third factor that is said to have an impact on the CAR ratio is none other than the ratio of loans to total assets. The increase in demand for loans shows no sign of slowing down while capital sources at banks fall into a shortage. Therefore, banks are forced to take away capital reserves to serve the purpose of lending, reducing the CAR ratio.

The fourth factor affecting the CAR ratio is the rate of deposits to customers with total assets. As total assets increase, the CAR ratio decreases. The joint-stock commercial bank that attracts more deposits from customers will have a lower CAR.

Finally, the fifth factor affecting CAR is the size of the bank. The larger the joint stock commercial banks in Vietnam, the smaller the CAR will be.

Through analyzing the factors affecting the CAR coefficient, it can be concluded that the regulations on how to calculate this coefficient in Vietnam are increasingly approaching the standard calculation method in the international arena. The CAR ratio in Vietnam still does not fully reflect the level of risk for banks.

5. A few important issues related to certain CAR coefficients that bankers must know

5.1. Finding the nature of the coefficient CAR

Based on the Basel II measurement framework with the function of ensuring safety and efficiency for the whole banking system, the Basel Committee on Banking Supervision has introduced important concepts for key pillars. columns include capital, information transparency and supervisory review.

5.2. Reducing risk, CAR becomes more sustainable

Based on globally regulated practices to ensure a sustainable banking system, if the bank’s own capital is abundant, the CAR will easily create a front. prevent risks in the face of stressful situations.. But to build, banks need to have a strategy to start from minimizing the credit risk coefficient.

According to that measure, financial experts have suggested that banks will have to implement an appropriate asset structure strategy, thereby being able to meet the quantitative requirements set out by Basel II. .

If you want to know if a bank meets the capital adequacy standards, you have to see if the bank meets all the legal requirements.

5.3. How is the CAR ratio at big banks?

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According to the Deputy Governor of the State Bank of Vietnam, currently, there are 4 commercial banks in the State sector that are experiencing rapid credit growth but have fallen into a state of capital shortage, which cannot be replenished in a timely manner. Up to now, all these four banks have a CAR ratio of approximately 9%.

5.4. When the CAR is close to the minimum, what happens?

The State Bank of Vietnam has issued a regulation: the capital adequacy ratio (CAR) needs to be at least 9%. This means that the total charter capital will have to reach 9% of the total assets, which can reach the outstanding loan balance to help commercial banks lend.

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But with the current CAR coefficient being only at the minimum threshold, the lending target of commercial banks will not be realized. thereby causing great disadvantages for the bank.

Facing this situation, state-owned commercial banks have tried to find solutions and policies to quickly solve this problem. However, the solutions are almost impossible.

The government has also tried to review and give feedback documents to the joint-stock commercial banking system.

For example, the State Bank has written to express its agreement with the plan that BIDV will issue a separate issue to KEB Hana Bank – a foreign investor. In addition, plans on capital increase have not been approved immediately with the promise of “promising” to give opinions when reaching agreement with the Ministry of Finance.

Thus, after learning about the CAR coefficient and related factors, you may not only understand what the CAR coefficient is but also understand that the operating mechanism of banks is not simple. If you are interested in the Finance – Banking industry, you can step in and learn more information besides the car coefficient. But with a clear understanding of the capital adequacy situation that commercial banks are facing, you may be the one to bring great solutions.

With what Bich Phuong shared, I hope you not only understand the concept of CAR deeply, but also can cook up the best ideas when pursuing the banking industry. Good luck!