Market favourable, banks race to increase capital

15-May-2021 Intellasia | Thoi bao Kinh doanh | 5:02 AM Print This Post

According to the capital increasing plan set out by banks in this year’s season for Annual general Meeting (AGM), hundreds of trillion dong are expected to flow into banks in the near future, through the form of share issuance.

Some experts said that the heat of the stock market is one of the important reasons for the race to increase capital of banks. The increase in charter capital not only helps banks improve their financial capability and credit risk provisions but also adds medium and long-term capital to finance credit granting activities in the context of the prolonged Covid-19 epidemic which has affected the production and business activities of many businesses.

In recent time, numerous banks such as Kien Long Commercial Joint Stock Bank (Kienlongbank), Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank), Southeast Asia Commercial Joint Stock Bank (SeABank), Vietnam International Commercial Joint Stock Bank (VIB), National Citizen Commercial Joint Stock Bank (NCB), Maritime Commercial Joint Stock Bank (MSB), An Binh Commercial Joint Stock Bank (ABBank), etc. have all received approval of the general Meeting of Shareholders for their plans to increase capital.

Notably, the options to increase capital by issuing shares to existing shareholders, privately issuing shares to foreign strategic shareholders and selling existing treasury shares to foreign partners were agreed by most banks.

Recently, VIB was approved by the State Bank of Vietnam (SBV) to increase its charter capital by nearly 4.438 trillion dong by distributing bonus shares at the ratio of 40 percent to existing shareholders from the undistributed after-tax profit and the additional charter capital reserve fund. Thereby, the bank’s capital scale can be raised to a maximum of more than 15.531 trillion dong.

In addition, according to the plan approved at the 2021 AGM of VIB, the bank expects to sell a maximum of 46.5 million shares, further increasing its charter capital to about 16 trillion dong.

Similarly, NCB said that the bank will increase its capital to more than seven trillion dong by offering 150 million shares to existing shareholders (the total offer value is 1.5 trillion dong) and issuing 3,000 separate convertible bonds at face value of one billion dong per bond. Accordingly, the total value of bonds expected to be issued is equivalent to three trillion dong.

Most notably, Ngo Chi Dung, Chair of Vietnam Prosperity Commercial Joint Stock Bank (VPBank), said that the bank plans to increase charter capital to up to 75 trillion dong. It is likely the highest level of charter capital in the banking industry, surpassing even big banks like Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV).

Accordingly, VPBank expects to raise capital through a private placement to existing foreign strategic shareholders. In addition, the bank may also use the outstanding treasury shares to sell to foreign partners.

The race to increase capital is not only seen among banks with small and medium size, capital increase is a hot topic in the AGM of the Big4 banks.

For example, in the period of 2021 2022, BIDV has been approved by shareholders to increase charter capital to more than 48.5 trillion dong, equivalent to an increase of 20.6%. Vietcombank will add 3.076 trillion dong to its charter capital after a private placement to increase the capital to over 50.401 trillion dong. The charter capital of VietinBank is expected to be raised to 54.134 trillion dong this year, if the plan to distribute dividends is approved by the SBV.

Increasing capital to cope with Covid-19 epidemic.

The pressure to increase capital of the banking industry has never decreased because in recent years, the average growth rate of total assets is 10 12 percent per annum, the credit growth rate in 2021 is expected to be 13 14%, and the growth of banks’ equity is at least about seven to eight percent.

With these growth rates, banks must ensure the Capital Adequacy Ratio (CAR) in accordance with the provisions of Circular 41/2016/TT-NHNN dated December 30th 2016 on the safety ratios of banks and foreign bank branches in Vietnam. Therefore, many banks have to use all four methods of raising capital, including (1) calling for or selling capital to strategic shareholders, selling capital to foreign financial investors; (2) retaining a portion of dividends; (3) continuing to issue long-term bonds to increase Tier-2 capital; and (4) proposing for approval of the issuance of shares under Employee Stock Ownership Plan (ESOP).

Dr Nguyen Duc Do, deputy director of the Institute of Economics and Finance (Academy of Finance), said that banks’ set capital raising plans show that they have an optimistic view of the economic development in the near future and also expect to meet the business growth purposes.

Particularly, this year, the prosperity of the stock market, including the attractiveness of bank stocks, is one of the main factors causing many banks to expand their share issuance plans.

Many people believe that issuing more shares will dilute the value. However, Dr Do said that this statement is not accurate because the capitalisation value of the company remains the same when additional shares are issued. The stock prices may fall when banks offer additional shares but they will have more room for growth.

Talking about the charter capital increase of many banks, Dr Vo Tri Thanh, member of the National Financial and Monetary Policy Advisory Council, said that banks need to increase their resistance. Particularly this year, due to the impact of the Covid-19 epidemic, bad debts in banks sharply rise and they have to provision for credit risks. This will erode profits and affect their financial capacity. Increasing capital is necessary to ensure the ability to provide credit of banks.

“As risks increase, the CAR of banks must be stronger to better cope, or minimise losses when the market fluctuates,” Dr Thanh affirmed.

 

Category: Finance, Vietnam

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