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Thursday, June 20, 2024

In the rush for capital hike

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Multiple banks have recently worked out plans to issue shares, pay bonuses and dividends in shares and sell shares under the employee stock ownership plan (ESOP). Between now and the year’s end when things are still more or less favorable, they are racing for completion of their capital increase plans to improve competitiveness.

December will be the deadline for shareholders of LienVietPostBank (LPB) to register for receiving dividends under the bank’s plan to issue nearly 97.7 million shares to pay a 10% dividend for 2019. Under the plan, the bank will increase its chartered capital by VND977 billion to VND10,746 billion following its capital increase of VND888 billion in February this year through paying dividends in shares and distributing bonus shares for shareholders.

HD Bank also has plans for huge capital increase this year through paying dividends and bonus shares with a ratio as high as 65%. According to the bank’s Q3 financial report, its chartered capital remains unchanged versus the amount of VND9,810 billion in the beginning of the year. Therefore, Q4 will be the peak time for completion of its capital increase endeavor.

After completing the first phase of capital increase to VND12,707 billion through issuing 289.8 million shares to pay dividends for the first phase of 2019 and distributing bonus shares equivalent to 30% of the equity capital, HD Bank will start the move to increase its chartered capital to VND16,088 billion with the dividend payment of 35% for the second phase of 2019.

Some other banks are also trying to complete their capital increase plans. In early October, Oriental Commercial Bank (OCB) was approved by the State Bank of Vietnam to increase its chartered capital from VND8,767 billion to VND10,959 billion. The bank will pay dividends of 25-27%. It has also sold shares successfully through a private placement with the Japanese investor Aozora.

VIB Bank will increase its chartered capital from VND9,245 to VND11,094 billion through issuing bonus shares with a ratio of 20%.

VietBank plans to issue 58.66 million shares to pay dividends to existing shareholders with a 100:14 ratio over the rest of the year, raising its chartered capital by over VND586.6 billion to more than VND4,776.8 billion.

Nam A Bank is executing the plan to increase chartered capital to VND7,000 billion, with the issuance of 57 million shares equivalent to VND570 billion to pay dividends of 12.48% and the sale of 143 million shares equivalent to VND1,430 billion

Statistics indicate that 18 banks have plans to increase capital this year, with a total increase of over VND70,600 billion. Three banks with the highest capital increase plans are Vietcombank with VND9,085 billion, VietinBank with VND7,447 billion and SHB with VND7,277 billion.

However, the total capital increase achieved over the past nine months is just around VND16,500 billion, and all the 18 banks have yet to complete their plans. SHB and ACB achieved the highest amount of capital increase with VND5,522 billion and VND4,988 billion as of end-September respectively, but they have just completed 46% and 30% of their respective targets. With the amount of VND54,000 billion to be raised over the remaining two months of the year, the task is not so easy.

The path for capital increase of three State-owned commercial banks—Vietcombank, VietinBank and Bank for Investment and Development of Vietnam (BIDV)—has been opened after the Government issued Decree 121/2020/ND-CP providing the legal basis for the three banks to pay dividends in shares and issue bonus shares from surplus capital to increase chartered capital.  Meanwhile, other commercial joint-stock banks will face more challenges.

Seizing opportunities

Though most banks currently have ample surplus capital, they cannot make light of the capital increase, but must even focus more on the issue to take advantage of the current favorable situation when cheap funds are amply available in the economy and the stock market has a positive prospect.

The common option of banks is to pay dividends in shares in lieu of cash, which is also a policy encouraged by the regulator. In addition, they can issue more shares to existing shareholders and foreign strategic shareholders. Banks poised to list on the stock exchange can also increase capital more easily in the upcoming time.

Another option is to sell capital to foreign investors. The effective EU-Vietnam Free Trade Agreement as of August 1, with the initial commitment of allowing foreign ownership in two banks to exceed the regulatory level to 49%, is also expected to trigger a new European investment wave in Vietnam’s banking sector. Recent rumors about the likely banks spread around the stock market may make waves for the shares of those banks together with a surge in the volume of their share transactions.

Meanwhile, the investment capital flows from Asian countries like Japan, South Korea, Singapore and Malaysia can be maintained. Cheap funds with ultra low interest rates together with the saturated markets may prompt international investors in developed countries to seek opportunities in other markets, and Vietnam is a potential destination.

More importantly, banks have to take advantage of the current positive business results to ensure success for the capital increase, as their profits in the upcoming time are forecast to hardly grow strongly, with non-performing loans due to Covid-19 to be stated in the financial reports when debt restructuring must be completed as required by Circular 01. Statistics show that the first nine months’ pre-tax profits of 28 banks which have published their financial reports are positive, with nearly VND86,912 billion, increasing by over VND7,077 billion or nearly 8.9% from the same period in 2019.

Besides the non-performing loan increase which leads to extractions for risk provisions as well as the profit reduction due to debt category re-classification in the upcoming time, banks’ earnings from services may be partly affected by the income from bancassurance, as the State Bank of Vietnam has recently whistled banks which have forced clients seeking to borrow loans to buy insurance. Income from bancassurance has contributed more to the total ex-interest earnings of banks in recent years.

Finally, the equity capital of many banks has increased in recent years thanks to the tier-2 equity capital increase through long-term bond issuance. When the bonds reach maturities in the upcoming time and are not eligible for equity capital inclusion, the banks have to continue to issue bonds to maintain the tier-2 equity capital or to increase the tier-1 equity capital though chartered capital hike.

Of note, under the prevailing regulations, as of the fifth year before maturity, the value of secondary loans included in tier-2 capital will be annually deducted by 20% of their total par value on the first day of the year as per the date of issuance; so the value of tier-2 capital in terms of the bond value will gradually decrease over the remaining time. Further, as per regulations, the tier-2 capital is equivalent to at most 100% of the tier-1 capital; so banks which have reached the maximum value of bond issuance must increase chartered capital to be eligible for further bond issues.

By Thuy Le

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