Banks massively increase charter capital

18-Aug-2015 Intellasia | Thoi Bao Kinh Doanh | 6:00 AM Print This Post

Banks have drastically implemented the restructuring scheme in order to improve profitability and increase charter capital, after a long time involving in bad debt issue. Banks mainly raise charter capital by conducting private placement to pay dividend and bonuses to overcome difficulties. If banks only merge or increase charter capital by a couple of trillions dong, there will be millions of shares injected into the market.

According to statistics, if merging or successfully raising charter capital, banks will supplement approximately 20 trillion dong into their charter capital in 2015. This figure does not include banks increasing charter capital via merging, with huge amount of shares poured into the market.

Banks of which the raising capital plans have been approved by the State Bank of Vietnam (SBV) include Saigon Hanoi Commercial Joint Stock Bank (SHB), Commercial Joint Stock Bank for Industry and Trade of Vietnam (Vietinbank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Maritime Commercial Joint Stock Bank (MaritimeBank), Vietnam Prosperity Commercial Joint Stock (VPBank), and Dong A Commercial Joint Stock Bank (DongA Bank), etc. The scale of charter capital of those banks has been increased considerably, by a few trillions dong at some cases.

The biggest charter capital increases mainly came from the mergers between state-owned banks and small and weak banks, which are subject to restructuring. The Saigon Thuong tin Commercial Joint Stock Bank (Sacombank) will raise its charter capital to 18.853 trillion dong after merging with Southern Joint Stock Commercial Bank. Vietinbank has augmented its charter capital by over three trillion dong when merging with Petrolimex Group Commercial Joint Stock Bank (PGBank), to 40.234 trillion dong. As expected, Vietinbank will continue increasing its charter capital to 49.975 trillion dong in the near future.

Charter capital of BIDV is supplemented 3.062 trillion dong after the bank merges with Mekong Housing Commercial Joint Stock Bank (MHN). Meanwhile, by merging with Mekong Development Commercial Joint Stock Bank (MDB), charter capital of Maritime Bank rose to 11.750 trillion dong on August 15th 2015.

In addition to the compulsory capital raising under the direction of the State, some other banks continue increasing their charter capital by issuing more shares. It is a matter of concern.

Although SHB’s shares have currently been traded at very low price, the bank still proposed to raise its charter capital from 8.865 trillion dong to 9.486 trillion dong via share issuance to pay 2014 dividend. SHB will issue an addition of about 62.1 million shares to pay dividend of about 621 billion dong.

In April 2015, VPBank raised its charter capital from 6.347 trillion dong to 7.324 trillion dong. Moreover, in July 2015, the bank conducted a private placement for over 73.2 million shares of the plan to issue 74 million shares, thereby increasing the charter capital to over 8.056 trillion dong. With the issuance price of 27,548 dong per share, VPBank generated about 2.017 trillion dong for capital supplementation. As planned, VPBank will increase charter capital by 8.444 trillion dong under the approval of SBV’s Governor.

Although SBV has requested VPBank and SHB to conduct the capital raising plan in accordance with the law and ensure appropriate growth plan in accordance with the approved growth rate in 2015. However, while banks are racing to complete their restructuring schemes, increasing charter capital needs to be carefully considered.

According to experts, when raising capital, banks will be under the pressure to develop their business targets (for revenue, profit and capital adequacy ratio, etc.). Shareholders have also repeatedly expressed their concerns or even criticised some bank leaders who were busy chasing the credit growth target and raising capital and forgot the profit figure, leading to the increasingly serious bad debt situation.

Meanwhile, leader of a bank explained that banks need to increase charter capital to strengthen the assets, to have funds to expand the operation, and to handle bad debts, etc. Meanwhile, shareholders are worried that increasing charter capital is mainly to avoid loss of capital, avoid being taken over, or avoid being acquired at zero dong per share due to unprofitability and capital losses such as the Vietnam Construction Commercial Joint Stock Bank (VNCB), the Ocean Joint Stock Commercial Bank (OceanBank), and the Global Petro Commercial Joint Stock Bank (GPBank). The three banks previously all planned to increase charter capital to offset capital losses, but they failed. Those bank could not offer financial proofs, and shareholders only learnt that their banks suffered capital losses which could not be offset, until they were acquired at zero dong per share.

Recently, DongA Bank wanted to raise charter capital by one trillion dong via selling 17 percent stake to Kinh Do Corporation. However, Kinh Do suddenly confirmed to stop the negotiation and not invest in DongA Bank due to concerns about the bank’s financial problems.

Meanwhile, SBV has issued regulations to tighten the virtual capital contribution into banks by directing shares and investors to comply with the regulations on purchasing shares, including the maximum ownership rate of individuals, organisations, legal capital sources, etc. That has made bank’s capital raising plans to be more difficult to carry out.

On July 16th, SBV approved Military Commercial Joint Stock Bank (MB) to increase charter capital from over 11.593 trillion dong to 16 trillion dong. The Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) also planned to increase charter capital to 4.5 billion US dollars by 2020. The Vietcombank’s capital increase will be from the private placement for foreign shareholders, from dividend payment in shares, and from mergers and acquisitions (M&A) activities. If carrying out the dividend payment in shares annually, Vietcombank will be able to increase charter capital by 10 percent every year.

Thus, the market will see a new wave of capital raising from commercial banks, in the context when the economy has not really recovered. Raising capital through M&A deals or issuing shares to pay dividend or bonuses create a significant supply to the market. Banks, which have been merged or acquired and have never been listed, will have millions of shares converted into charter capital and publicly listed. This shows that virtual charter capital increase happens more frequently than actual capital contribution; and this is the cause of the risk to the banking system.

 


Category: Finance, Vietnam

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