Capital Raising: Banks Face Challenges

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Covid-19 epidemic’s outbreak created many difficulties for banks’ plans to increase capital.

Many banks plan to raise capital in 2020, including the group of state-owned commercial banks (SOCBs), one of the reasons banks are making great efforts to raise capital this year is also to meet the standard Circular 41 Basel II. But the outbreak of Covid-19 epidemic caused many difficulties for banks’ plans to increase capital. Consequently, the number of banks raising capital in the first months of the year is quite modest and capital increase is gradually shifting to the last months of 2020. Facing the complicated developments of the Covid-19 pandemic, the The State Bank of Vietnam (SBV) required banks to saving costs, not allowing pay cash dividends to focus financial resources to support businesses affected by epidemics, so banks shift to pay stock dividend to capital increase.

Accordingly, SBV has recently approved for two banks to increase their charter capital, Bac A Commercial Joint Stock Bank (Bac A Bank) and Asia Commercial Joint Stock Bank (ACB). In which, ACB increased its chartered capital from over 16.627 trillion dong to nearly 21.616 trillion dong through issuing shares to pay dividend. At the general Meeting of Shareholders in June, shareholders of ACB approved a plan to issue shares at the rate of 30 percent to pay dividends in 2019. Expected issuance time is in the fourth quarter of this year. Bac A Bank also increased its charter capital from 6.5 trillion dong to 7.085 trillion dong with the same method of issuing 58.5 million additional shares to pay dividends, with the ratio of nine percent.

HCM City Development Joint Stock Commercial Bank (HDBank) also announced that it will issue shares to pay dividends at the rate of 50 percent and bonus shares at the rate of 15%, thereby increasing its charter capital from nearly 9.81 trillion dong to 16.088 trillion dong. It is expected that if the issuance is completed this year, HDBank is the bank with the highest charter capital growth in the industry. Tien Phong Commercial Joint Stock Bank (TPBank) is also planning to issue shares to increase its charter capital, which is expected to increase from nearly 8.6 trillion dong to more than 10.6 trillion dong, the additional capital will be about 2.15 trillion dong. TPBank will issue more than 181 million shares and issue nearly 34 million shares under the employee selection programme. Some other banks such as MB, SCB, VietA Bank… are also planning to raise capital.

Recognising that increasing stock dividend to increase capital is the fastest solution at this moment to be able to increase capital, but according to experts, it is not easy to do, because pay by shares must be approved by shareholders. However, Assoc.Prof PhD. Dinh Trong Thinh found that, in the current epidemic situation, the bank can persuade shareholders to increase capital by issuing additional shares, even if only to a certain extent, and can only partially compensate on capital raising plan. In fact, it is difficult to raise capital right from existing shareholders, let alone potential investors, including foreign investors.

Strengthening financial resources is required

Taking a broader view, a financial expert said that, in fact, from the beginning of the year until now, due to the outbreak of the Covid-19 epidemic, all economic sectors and industries in general have slowed down, and capital mobilisation was also facing many difficulties. Especially, bank loans go slow recently. Therefore, the amount of capital surplus is also posing a challenge for banks because they still have to pay interest to depositors.

“It is clear that from now until the end of the year, there are only about 3 months left, plus the outbreak of Covid-19 in some localities makes activities in the provinces and cities in the country slow down in general. This is causing difficulties for both production activities and banking system, so it is difficult for 2020 capital raising in my opinion as the original plan proposed by the bank”, Dr Nguyen Tri Hieu shared.

At Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank)’s 2020 Annual general Meeting of Shareholders, Chair Le Duc Tho emphasized that increasing charter capital is a very important task in the development process of VietinBank. Increasing capital will create conditions for banks in general and VietinBank in particular to expand credit growth, supply capital for the economy, and welcome new opportunities. VietinBank has not been allowed to increase its charter capital for many years. Agribank is also in a similar situation without additional capital investment.

More about the implementation of Basel II is currently being focused on by credit institutions to meet international practices on capital adequacy, contributing to maintaining the stability and safety of the system of credit institutions. Up to now, there have been 76 credit institutions applying capital adequacy ratios according to the Circular No. 41/2016/TT-NHNN of the SBV (from January 1, 2020). If the case cannot increase capital, it will affect the ability of these banks to provide credit.

Associate Assoc.Prof PhD. Dinh Trong Thinh realised that is what banks are forced to try their best, but will also be considered by the SBV. Because the Covid-19 pandemic is a force majeure, affecting the entire economy globally, so it is good if some banks meet the standard, in case of banks cannot do it, the regulator will have appropriate solutions to prevent this regulation becoming too “impossible” for commercial banks.

Have another point of view, PhD. Nguyen Tri Hieu said that the application of Basel II standards must follow the plan, because the more challenging the banking system is, the more transparency and publicity needs to be improved. And it is Covid-19 that will be one of the tests to prove the resilience of the credit institution system to difficulties, achieving Basel II standards is also a confirmation of the financial potential and reputation of banks.

Recently, SBV’s Governor continued to request functional units to urgently coordinate with relevant ministries and agencies to carry out procedures to increase charter capital for Vietnam Bank for Agriculture and Rural Development (Agribank) from the state budget; continue to deal with the increase in charter capital of SOCBs (VietinBank, Vietcombank) through paying dividends in shares. At the same time, it proposed to submit to government to issue a Decree amending and supplementing Decree 91/2015/ND-CP to have a basis to increase capital for SOCBs; build a roadmap to increase capital for SOCBs in the period 2021-2026, including an increase in capital from the state budget to submit to approved authority…


Category: Finance, Vietnam

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