Banks saying no to dividend

13-Jun-2014 Intellasia | Dau Tu Chung Khoan | 6:00 AM Print This Post

The significant decrease in profit in the past year and the forecast that banking operations this year to continue having difficulties are the reasons making banks say ‘no’ to dividend payment.

The 2014 annual general meeting (AGM) season, which has just ended has witnessed the pressing mood of many shareholders, especially minority ones who poured their money into shares of small and medium scale banks before the economic downturn occurred. They both have to suffer from declining stock prices, and have not enjoyed dividend payment for years.

Southern Commercial JS Bank (Southern Bank) has no plans to pay dividends to shareholders this year. But what makes the shareholders of the bank feel most pressing is that in the previous years, this bank had planned to pay dividends but it repeatedly “broke promises”. Thus, until the merger with Sacombank is completed this year, shareholders of Southern Bank will not receive any dividend. Southern Bank’s dividend payout ratio in 2013 was expected at 8 percent. However, the bank’s profits fell by 90 percent compared with the year’s target of 560 billion dong, so the Southern Bank has decided not to pay dividends to shareholders as it has done in the previous two years.

Mekong Development Commercial JS Bank (Mekong Bank) also failed to carry out the 2013 dividend payment plan because its profit before tax last year was only 110 billion dong, less than 50 percent of the set targets. At the same time, Mekong Bank is in the process of completing procedures to merge into Vietnam Maritime Commercial Joint Stock Bank (Maritime Bank) therefore, it also has to say “no” to the dividend. Notably, Maritime Bank, the one who merges Mekong Bank also offers a plan to pay no dividend for the years of 2013 and 2014, which means Mekong Bank shareholders can not rely on dividends from the post-merged bank.

Previously, when pouring capital into bank stocks, in addition to the expectation of price increase, investors also rely on annual dividends (commonly at 10 percent-15 percent) together with the bonus shares. However, in three recent years, bank shares have fallen back and dividends have also plummeted. Notably, for small banks with the chartered capital of three trillion dong, the dividend rate paid to shareholders has dropped to 1-2 percent, much lower than the savings rate. Even some banks that are subject to restructuring have lost their ability to pay dividends to focus resources to restructure.

Nam Viet Commercial Joint Stock Bank (Navibank) has not paid dividends to shareholders for two years due to the strong fall in profits. The total profit before tax in 2013 of Navibank reached 31.94 billion dong, but bad debts at the end of the year still accounted for six percent of the total loans. In particular, the potentially irrecoverable debts accounted for 438.32 billion dong, up 19.5 percent from the end of 2012. Therefore, it is very difficult for Navibank shareholders expect for dividend payment this year. In the first quarter of 2014, Navibank’s profit after tax was only 2.46 billion dong, down nearly 85 percent from the same period last year. The non-performing loan (NPL) ratio of Navibank till the end of the first quarter, though having reduced from 6.07 percent at the end of 2013, is still quite high, at 5.53 percent.

Navibank is in the process of restructuring of internal resources as required by the State Bank. Similarly, a number of other banks are also in this process such as: Petrolimex Group Commercial Joint Stock Bank (PGBank), Saigon Joint Stock Commercial Bank (SCB), Vietnam Construction Commercial Joint Stock Bank (VNCB), Vietnam Public Joint Stock Commercial Bank (PvcomBank), etc. All these banks cannot pay dividends to shareholders, because they have to set aside the profits for provision of bad debts and to serve the restructuring process.

Nam A Bank has paid 2013 dividend at seven percent to shareholders having average equity of less than 10 billion dong and 3.42 percent to shareholders having equity of over 10 billion dong. In 2014, Nam A Bank targets pre-tax profit of 210 billion dong. However, according to Tran Ngo Phuc Vu, general director of Nam A Bank, in the context of market difficulties, the profit target has been carefully calculated by Nam A Bank.

The fact is that, not only small banks with low profits, no dividends, but also at banks that have medium scale and better profits such as Vietnam Export Import Commercial Joint Stock Bank (Eximbank), Asia Commercial Joint-Stock Bank (ACB) and Sacombank, etc., the dividend payout ratio also has a downward trend.

The Board of directors of Eximbank plans to buy back 62 million shares through surplus funds and the profit after tax of 2013, therefore, the 2013 dividend payout ratio is expected at 4 percent, unlike the initial payment plan of 12 percent. In 2014, Eximbank plans to pay dividend of 8.5 percent if it attains 1.8 trillion dong pre-tax profit. However, according to Pham Huu Phu, general director of Eximbank, to achieve the planned profit targets in this difficult economic context, major efforts have to be made.


Category: Finance

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