End of last week, the National Monetary and Financial Policy Advisory Council had a meeting on the first quarter of 2019 to determine the process of equitisation and divestment of State capital in enterprises which is currently one of the “bottlenecks” of the economy. 2018 was evaluated as a year of failure in these activities.
During last week, the shocking news to investors and small shareholders at Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) has also officially implemented: cutting key growth targets, especially profit. The remark of 10 years after equitisation and transformation from a State-owned bank in VietinBank seems to face “against the wall”.
VietinBank had to cut its profit target by 2018, the last expected level was lower than the progress achieved after the first nine months of the year; credit was also forced to be cut by tens of trillions of dong.
The requirement to ensure sufficient capital for the operation had reached the limit, by borrowing through an additional four trillion dong long-term bonds to calculate as Tier-2 capital during 2018. The capital adequacy ratio (CAR) is not extended for growth, while the risk weights increase in some items with significant proportion from 2019, along with some capital under the roadmap to remove, group transfers according to new classification.
“Facing against the wall”, many banks was forced to cut targets as mentioned above. After three consecutive years, VietinBank proposed and recommended many authorities levels to help overcome difficulties to increase chartered capital.
At the high level, both the government and the State Bank of Vietnam (SBV) have not been less than ten times, at various forums and meetings, making requests and urgency to have solutions to increase capital for commercial banks.
But so far, the proposal was still a proposal, and not only VietinBank, but Vietnam Bank for Agriculture and Rural Development (Agribank) also forced to borrow via issuance of four trillion dong long-term bonds last year.
Being against wall-foot, VietinBank have reduced to the allowable State ownership to the limit of 65 percent, and the foreign investors’ ownership has also been filled up to 30 percent.
Exactly 10 years ago, VietinBank organised Initial Public Offering (IPO) and equitisation. The model here quickly succeeded: IPO succeeded transforming the operation model, and the bank quickly found a foreign strategic shareholder with a large capital surplus, which Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) have not achieved so far.
Over time, the policy has changed in which for State-owned banks after equitisation, State ownership is maximum 65 percent, and foreign ownership is maximum 30 percent.
With these limitations, VietinBank has exhausted the limit of both State resources and foreign resources. As for Vietcombank and BIDV, the remaining resources are still quite large, and they can still gradually exploit in the near future.
But what happens when Vietcombank and BIDV fully exploit the resources like VietinBank?
After 10 years of equitisation, these questions become stuck in the role of State shareholders.
After equitisation, the State does not spend any money to raise capital until, even through stock dividend payment plan, except for one case when Vietcombank delivered bonus by shares.
The National Assembly has finalised its mid-term budget plan without sources to raise capital for this sector. Meanwhile, after equitisation, the State-owned banks accounting for about 50 percent of the loan market share often stretched the annual credit target to serve economic growth and promote preferential loans and support programmes.
At the same time, the sluggishness in increasing capital of the State shareholder has gradually affected interest of minority shareholders and strategic foreign investors.
This is also shown through dividend policy. In state-owned joint stock banks, “nominal profits” situation happened during the past years: although achieving record business results and high growth over the years, but dividend rate was still only 5-8 percent instead of flexibly higher dividend payout ratio like in private commercial banks or many equitised state-owned companies.
It is possible that after equitisation and when resources are exhausted, being “against wall foot model” will slow down the development of banks, causing loss of market share in the context that market expansion and competition among banks are constantly growing.
And they will have to wait for another three years, in the period of 20212025, when the strategic development plan of the industry takes effect step by step, the State ownership rate decreases from 65 percent to 51 percent, creating new room. Meanwhile, the requirement to apply Basel 2 with the pressure to ensure sufficient capital by 2020 is just very close.
