In this year’s annual general meeting (AGM), apart from information about profit, dividend and change in management board, one of the hot “issues” that receive many questions and concerns from shareholders is the capital increase.
The fact that shareholders are anxious about the capital increase is understandable when the official time to apply Basel II to all banks is coming close while the Capital Adequacy Ratio (CAR) at many banks is close to the “safety threshold”.
The latest statistics of the State Bank show that in February 2018, the chartered capital of credit organisations was 514.814 trillion dong, increasing 0.47 percent from the end of the previous year.
Of which, the chartered capital of state-owned commercial banks remained unchanged at 147.771 trillion dong, the average CAR of state-owned commercial banks in February 2018 was only 9.36 percent, lower than the 11.03 percent of joint stock commercial banks and a bit higher than the current minimum regulation of nine percent. And, following Basel II standard, the CAR of this group will surely below the standard.
So far, it is estimated that about 19 banks have announced their capital raising plans in this year with the total expected capital increase of more than 58 trillion dong.
ABBank has the strongest capital increase plan with the target of doubling the chartered capital from the current level (more than 5.319 trillion dong) in order to improve CAR in accordance with the current regulation, meeting CAR following Basel II standards; increasing financial capacity, providing additional funding to the development of banking activities.
Accordingly, ABBank will raise chartered capital by making dividend payment at 7.4 percent; issuing bonus shares to existing shareholders from the chartered capital reserve fund and the remaining non-distributed after-tax profit; offering shares to existing shareholders; individually offering to investors and issuing ESOP.
Meanwhile, VPBank also plans to increase capital strongly from 15.7 trillion dong to nearly 28.8 trillion dong, equal to the increase of 77 percent through the dividend payment by shares, issuance of bonus shares, ESOP and individual shares.
NCB is expected to increase capital from 3.010 trillion dong to 5.101 trillion dong, equal to 66.5 percent through the issuance to strategic foreign investors.
This year, BIDV continues to announce capital increase plan from 34.187 trillion dong to 43.638 trillion dong, equal to the increase of 28 percent. Accordingly, the bank will make public offering or individual offering of five percent of chartered capital, issuing to foreign investors and ESOP.
Clearly, the capital increase demand of banks at the current moment is uncontroversial. However, whether banks can successfully carry out is another thing.
Looking at the capital increase plan last year and implementation progress, it can be seen that some mid-range banks such as VPBank, MBB, ACB, etc. have quite successfully increased capital through the dividend payment and issuance of bonus shares.
However, many banks were not successful and the capital increase plan has been delayed over the last many years. Vietcombank is an example.
In 2017, Vietcombank planned to offer for sale maximum 359.77 million shares, raising the chartered capital after issuance to 39.575 trillion dong.
However, this plan was not able to be implemented then due to the disagreement between parties on purchase price.
Similarly, in 2017, another state-owned giant i.e. BIDV also planned to increase capital by 13 percent through three stages including share issuance to make 2016 dividend payment at about 2.393 trillion dong, equal to the pay-out ratio of seven percent; issuing 1.026 trillion dong ESOP to employees, and separately issuing 1.026 trillion dong to investors.
However, the bank’s issuance plan to make dividend payment could not be implemented when the Ministry of Finance asked to make dividend payment in cash. Meanwhile, the capital increase plan by selling and issuing shares to domestic and foreign investors was also unsuccessful.
At the 2017 annual general meeting, the management board of NCB proposed similar capital increase plan to 2018 with such specific methods as share issuance to make 2015 dividend at nearly 151 billion dong and capital increase from the issuance of new shares at 1.828 trillion dong.
Even, Nguyen Thi Mai, member of the Board of directors disclosed that in 2016, the Board of directors worked with domestic and foreign partners wishing to become the bank’s partners.
However, more than a year has passed and NCB still cannot complete the plan.
At VietABank, the capital increase plan from 3.5 trillion dong to 4.2 trillion dong was put forward since 2016 but is still stuck so far.
According to the explanation from leaders of VietABank, the reason was because of the influence from the slow economic growth at home and abroad. At the same time, high capital increase demand of banks in recent years has raised the supply of shares of the banking sector in the stock market.
Meanwhile, the M&A wave and the strengthening of bank restructuring have reduced the attractiveness of shares of the banking sector, and investors no longer feel interested. Therefore, VietABank faced difficulty in seeking for partners to offer shares for sale.
Similarly, Saigonbank still could not carry out capital raising plan from 14.295 trillion dong to 16.600 trillion dong after two years. NamABank also could not raise the capital from 3.021 trillion dong to five trillion dong in 2017 and shareholders continued to look forward to the bank’s realisation of its promise this year.
According to a financial expert, the capital increase is feasible if banks make dividend payment in shares. However, it will be much difficult if the bank choose to seek for partners, especially foreign ones.
The reason is because the system is in the restructuring process with many hidden potential, so it is not really interesting. Besides, the regulation that an investor is not allowed to own more than 20 percent stake of a bank and the total ownership of foreign investors must not be more than 30 percent is also one of the obstacles that reduce the attractiveness of bank shares.
