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Tuesday, August 9, 2022

Bank stocks: rising supply and bad debt omen risks ahead

By Linh Trang

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In addition to plans to list their shares or move to another stock exchange, many banks have planned to increase their charter capital by paying dividends in shares and offering shares to foreign stakeholders this year. Investors should pay attention to rising bad debt if they want to invest in bank stocks.

Enhancing listing and stock exchange changing plans

There are currently 27 banks listing and trading their shares on the local stock market, including 17 banks on the Hochiminh Stock Exchange (HOSE), two on the Hanoi Stock Exchange (HNX) and eight others on the Unlisted Public Company Market (UPCoM). Despite the small number of listed banks, the volume of bank shares is huge due to the banks’ large charter capital and outstanding shares.

Since early this year, many banks have unveiled plans to change stock exchanges or increase their charter capital, leading to an increasing supply of bank shares. An Binh Commercial Joint Stock Bank (ABBank), at its annual general meeting of shareholders for 2022, approved a plan to list its shares on HOSE and raise its charter capital by VND991 billion to VND10.4 trillion. Once the plan is implemented, HOSE will have 1.04 billion ABB shares. Besides ABBank, many banks trading their shares on UpCom have sought to move their shares to HOSE or HNX to attract investors and enhance the liquidity of their stocks.

At the 2022 annual shareholders’ meeting of KienlongBank (KLB), shareholders approved many important issues, including listing its shares on HOSE or HNX. KLB shares have been traded on UpCom since June 29, 2017. Similarly, Nam A Bank’s shareholders have also approved a plan to move its shares from UpCom to HOSE or HNX. In reality, Nam A Bank has been preparing for the listing on HOSE for two years but the plan is yet to be implemented due to market developments.

In the 2020-2021 period, many banks listed their shares on HOSE or HNX or changed their stock exchanges. For example, Asia Commercial Joint Stock Bank (ACB) and Saigon Hanoi Commercial Joint Stock Bank (SHB) moved their shares from HNX to HOSE, or Lien Viet Post Joint Stock Commercial Bank (LPB) and Vietnam International Bank (VIB) from UpCom to HOSE. The changing listing and stock exchange wave has boosted many bank stocks’ growth.

The listing of shares on HOSE is expected to bring many benefits to banks, in which capital increase opportunities are most prominent. Banks have hiked their charter capital to meet Basel II and Basel III standards. In addition, the change in stock exchanges also helps cement banks’ brands and increase their transparency. Furthermore, listing on HOSE will help improve the liquidity of bank stocks as they will receive the attention of more investors.

Stock supply rises due to charter capital hike

In addition to plans to list their shares or move to another stock exchange, many banks have planned to increase their charter capital by paying dividends in shares and offering shares to foreign stakeholders this year. The Vietnam Prosperity Joint Stock Commercial Bank (VPBank) sought to increase its charter capital to nearly VND80 trillion by offering shares to foreign investors and paying dividends or offering bonus shares, using its equity. If successful, VPBank will become the largest bank by market capitalization in Vietnam.

The Military Commercial Joint Stock Bank (MBBank) also sought to raise its charter capital from VND37.8 trillion to VND46.9 trillion this year. Moreover, Southeast Asia Commercial Joint Stock Bank (SeABank) planned to increase its charter capital from nearly VND16.6 trillion to VND22.69 trillion. ACB, Sacombank, VIB, OCB and HDBank also drew up plans to hike their charter capital by 25%-35% through dividend payments. Meanwhile, the Bank for Investment and Development of Vietnam plans to issue an additional 341.5 million shares, or 8.5% of its charter capital, through a public offering or a private placement but has yet to execute the plan.

The banks’ charter capital hike race was forecast to remain stable or even grow stronger this year as banks’ equity growth must be in line with credit growth to help banks have larger capital sources to maintain their growth momentum and ensure a wider capital safety margin in the coming periods. However, the enhancement of the payment of dividends in shares and the issuance of shares to raise charter capital may affect appraisal indicators, thus making bank stocks less attractive, especially when king stocks have been experiencing strong corrections.

Meanwhile, since the second half of last year, bad debts have been on the rise, a reason for the decline of bank stocks. However, the bad debt increase was due to the Covid-19 pandemic and not caused by banks as in previous periods. Vietnamese banks’ bad debt settlement rate has surged from 75% in 2017 to over 100% in 2021. In reality, the banking sector has prepared for the bad debt increase as banks have made provisions for risks. In addition, banks have paid much attention to controlling the asset quality.

To reduce risks, the State Bank of Vietnam has also worked out a roadmap for making risk provisions for banks for three years, starting from 2021 for restructured debts, and many banks have completed making provisions before deadlines. On the other hand, many banks stated that customers’ debt payment progress has improved after the pandemic, helping reduce bad debts.

In general, bank stocks will face risks related to bad debts and the abundant share supply in 2022. However, the effect of risks on each bank and the fall of bank stocks in the previous corrections were different. Therefore, the split in the prices of bank stocks was forecast to be deeper in the coming periods.

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