On April 26th, Vietnam Technological and Commercial Joint Stock Bank (Techcombank) announced that it successfully sold over 164 million shares, earning about 21 trillion dong. Notably, the price reached up to 128,000 dong per share.
For the first time in decades, the Vietnam banking system saw a representative having market share in the “100,000 dong per share club”.
How has Techcombank managed to so when the leading members of the market, in common sense, such as VCB share of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) is struggling to rebound to 60,000 dong per share and CTG share of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) is having difficulty in keeping the 30,000 per share level. Or for other banks with similar scale to Techcombank such as Vietnam Prosperity Commercial Joint Stock Bank (VPBank) has not yet regained the 55,000 dong per share, and Military Commercial Joint Stock Bank (MB) is still fluctuating around 31,000 dong per share, etc.
While awaiting technical analysis, detailed information before the listing of Techcombank on June 4th offered the first explanation. Accordingly, Techcombank share price has been established on the basis of a “rich man” with eight consecutive years not distributing or diluting profits.
The wealth of Techcombank is reflected in its equity size which is threefold larger than its charter capital. This “rich man” has more than 8.2 trillion dong of share premium by the end of the first quarter of 2018, a huge amount of treasury shares, and particularly a leading undistributed profit of over 13 trillion dong. With the above mentioned record deal which is worth 21 trillion dong, the share premium and equity size of Techcombank will soon push the bank up to the level of the “big 4″ state-owned banks.
In the “big 4″ group, the leading “wealthy man” is VietinBank. The bank is currently having the advantage of owning a nearly nine trillion dong of share premium, an undistributed budget of over 11.6 trillion dong, and reserves of nearly 7.5 trillion dong. VietinBank’s charter capital is only 37.234 trillion dong but its equity is more than 66.171 trillion dong.
With dominant State ownership and low annual dividend distribution ratio, the large retained profit has also created a “rich man” named Vietcombank with a very impressive undistributed profit of over 12.2 trillion dong and reserves of 7.253 trillion dong. Despite having nearly 36 trillion dong in charter capital, Vietcombank’s equity is up to 56.065 trillion dong
Similarly, Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) is having a charter capital of 34.187 trillion dong and an equity of 50.803 trillion dong. BIDV’s share premium is insignificant and its retained profit and reserves are much lower than VietinBank’s and Vietcombank.
With the ongoing plan to sell capital to foreign investors, if Vietcombank and BIDV are successful, these two “rich men” are expected to become wealthier with a prospect of having share premium.
Also from the sale of shares, closing the year 2017, the Vietnam banking system emerged the case of Hochiminh city Development Commercial Joint Stock Bank (HDBank), considering the size of charter capital and equity. By the end of 2017, HDBank carried out its Initial Public Offering (IPO) and private placements, grossing 2.042 trillion dong of share premium and undistributed profit of over 2.526 trillion dong, raising the equity to over 15.779 trillion dong while its charter capital was just 9.810 trillion dong.
For the case of VPBank, although its charter capital is just 15.706 trillion dong, it has accumulated an equity of over 31.635 trillion dong with reserves of over 6.3 trillion dong and share premium of over 5.866 trillion dong, etc.
Both HDBank and VPBank quickly became wealthy. In 2017 alone, the seized the opportunity of the stock market and implemented successfully the large-scale IPOs to quickly accumulate resources.
As mentioned above, the emerging “rich men” in the banking system of Vietnam must of course ensure real strength and operation quality to accumulate the wealth with resources surpassing the capital contribution of shareholders.
However, the larger the capital scale, the harder to create a corresponding profit.
On May 9th, the “big 4″ banks simultaneously raised fees for ATM services and account transfers, etc. This is one of signs of the above pressure, although both Vietcombank, VietinBank and BIDV attained satisfactory profits in the first quarter of 2018.
It is the sign of pressure, because the State Bank of Vietnam (SBV) this year only approved those banks to expand credit by just 14-16 percent and their room to increase total assets is near the limit as they have not been able to raise charter capital in the past three years (except for Vietcombank which managed to transfer the share premium to bonus shares in 2016). Accordingly, increasing service revenues is a solution.
For other “rich men” such as Techcombank, VPBank or HDBank, of which the size of capital increases significantly and financial capacity is enhanced, the credit growth limit allowed by SBV to be higher.
Nevertheless, if increasing the wealth level based on lending, the pressure of credit quality and the risk of potential bad debts make it not the optimal solution, although some members are still replying heavily on this direction.
Instead, in addition to increasing service revenues, further enhancing asset quality and shifting assets to the segments with higher profitability, improving net interest income by minimising costs, making the net interest to keep track with sales is the main direction.
This prospect, after 2017, is continuing to show via the recently announced results of the first quarter of 2018.
