Refusing to merge, Saigonbank struggles

24-Aug-2019 Intellasia | InfoMoney | 6:02 AM Print This Post

Saigon Commercial Joint Stock Bank for Industry and Trade (Saigonbank, SGB) was established in 1987. After nearly 32 years in operation, the bank’s charter capital is only slightly higher than legal capital of three trillion dong. Its business activities have been not very prosperous, especially after the bank refused to merge into another big bank.

Difficulty in raising capital

Charter capital is always a concern of Saigonbank leaders, especially in the context when the banking and finance sector is having to apply Basel II standards. Despite making efforts, the bank is still struggling to increase capital. Since 2014, Saigonbank has planned to increase charter capital from 3.080 trillion dong to four trillion dong and continued to consult shareholders about raising capital to 4.080 trillion but it is still unsuccessful.

Moreover, in March 2016, Saigonbank received approval from the State Bank of Vietnam (SBV) to increase charter capital by one trillion dong. However, since then, the bank has not yet implemented the plan to issue shares to raise capital to improve financial capacity and competitiveness. Saigonbank’s charter capital still stands at three trillion dong the lowest level in the banking system.

In 2016 2018 period, Saigonbank’s major shareholdersCommercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) and Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) in turn divested from Saigonbank in accordance with the roadmap set out in Circular 36/2014/TT-NHNN. In particular, Vietcombank collected over 266 billion dong from divesting 13.2 million shares in November 2017. VietinBank also transferred more than 15.1 million shares and net collected nearly 305 billion dong in May 2019.

Regarding charter capital, Saigonbank has always been in the lowest group in the system. By the end of June 2019, Saigonbank was in the same group with banks with charter capital of more than three trillion dong such as Viet A Commercial Joint Stock Bank (VietABank), Nam A Commercial Joint Stock Bank (NamABank), Viet Capital Commercial Joint Stock Bank (VietCapitalBank), Kien Long Commercial Joint Stock Bank (Kienlongbank), and Vietnam Thuong Tin Commercial Joint Stock Bank (VietBank), etc. Most of these banks had failed with their capital raising plan for many reasons.

Despite encountering difficulties in increasing capital, Saigonbank still refuses to carry out mergers and acquisitions (M&A). In the end of 2014 and beginning of 2015, there were many rumours around the merger between Saigonbank and Vietcombank, because Saigonbank could hardly improve its financial capacity.

Nevertheless, after the confusion about stock swap ratio, Saigonbank’s major shareholder HCM City Party Committee Office (currently holds more than 18 percent stake) disagreed the merger plan with Vietcombank, while merging into Vietcombank was considered the most feasible solution for Saigonbank at that time, especially when its bad debts soared. A senior leader in the banking system said that Saigonbank could hardly stand firm in the future if not considering M&A.

Recently, HCM City Party Committee said that the unit will not do business anymore and just take the role of supervision. It is known that HCM City Party Committee is having large capital contribution in Saigonbank and Dong A Commercial Joint Stock Bank (DongABank). Thus, with the above policy, maybe this year and next year, HCM City Party Committee will promote the divestment in businesses, especially in the banking sector.

Profit declines

Saigonbank has recently announced the second quarter 2019 report with a seven percent decline in net interest income, reaching 157 billion dong. Other activities of the bank such as services, foreign exchange trading, securities trading, and other activities all plummeted over the same period. Therefore, although the bank’s operating expenses also decreased to nine percent to 109 billion dong, the bank still reported a 24 percent profit decline to 14.2 billion dong in the second quarter of 2019.

Overall, in the first six months of 2019, Saigonbank posted a net interest income of 316 billion dong, down by 3.2 percent compared to the same period of last year. The bank’s other activities also declined, and operating expenses increased by three percent, causing its net profit to fall to 132.6 billion dong, down by 30 percent. However, since Saigonbank lowered its provisions for risks from 41 percent in the same period of 2018 to 33.3 percent (equivalent to a cut of 33 billion dong), the bank’s pre-tax profit after the first two quarters of this year dropped by only 21 percent.

By the end of June 30th 2019, the total assets of Saigonbank were 21.291 trillion dong, up by 4.5 percent compared to the beginning of the year. The bank’s outstanding loans stood at 14.181 trillion dong, up by 3.73 percent. The bank’s on-balance sheet bad debt ratio was 2.25 percent.

This bad debt ratio of Saigonbank is much lower compared to the end of 2018 when it recorded up to 889 billion dong of bad debts, accounting for 6.39 percent of the total outstanding loans. According to Saigonbank’s Chair of the Board of directors Vu Quang Lam, the reason leading to the bank’s bad debt decline is its efforts to actively review and assess all the debts, classify and properly account the debts to have appropriate solution.

However, since the bank’s charter capital is still three trillion dong and bad debts remain a major concern of Saigonbank, restructuring is a difficult task.

In the Annual general Meeting in 2019, Saigonbank’s Board of directors submitted a plan to register Saigonbank’s shares for trading on the Unlisted Public Company Market (UPCoM) in the end of 2019. This plan is in accordance with the SBV’s policy to have all credit institutions listed before 2020.

 


Category: Finance, Vietnam

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