VietinBank plans not to pay dividends in 2019, applies Basel II immediately after raising capital

23-May-2020 Intellasia | Dau tu Online | 6:02 AM Print This Post

After a deep decline in 2018, the profit of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) strongly increased in the past year and for the first time surpassed 10 trillion dong. Despite the record high profit, dividend payment remains the bank’s headache as it needs to retain capital to ensure the minimum capital adequacy ratio (CAR) when raising capital has been difficult over the years.

Proposal to not pay dividends in 2019

According to VietinBank’s profit distribution plan expected to be submitted at the 2020 Annual general Meeting to be held on May 23rd, VietinBank is proposing a dividend payment plan which retains all profits (equivalent to zero percent payment rate), in addition to deducting 10 percent of the charter capital for financial reserve fund and five percent of charter capital for the reserve fund to supplement charter capital. The remaining profit after distribution is nearly 6.042 trillion dong.

Year 2019 marked a strong recovery of VietinBank. After declining sharply in 2018, the pre-tax profit growth of the parent bank and the consolidated bank were respectively 85 percent and 79.6%. The bank’s consolidated pre-tax profit was 11/781 trillion dong, the highest in its history. By the end of 2019, VietinBank’s undistributed after-tax profit on the consolidated financial statement reached approximately 19.830 trillion dong, nearly half of the bank’s charter capital (37.234 trillion dong).

This is not the first year the bank has proposed a plan of no dividend payment. In 2018, when the business results were not very positive, VietinBank proposed two dividend payment options: either not paying dividends, or paying dividends in shares at a ratio of 8.05%. However, along with the dividend plan in 2017 (five to seven percent in cash), the 2018 payment is still pending. The last time VietinBank paid dividends was in Septemebr 2017 for the fiscal year 2016.

The plan to accumulate profits is expected to continue in 2020. In this year’s business plan to shareholders, VietinBank also asked to retain all profits or pay dividends for year 2020 in shares to increase equity to meet development requirements. The specific plan on dividends shall be implemented under the decision of competent State authority.

Previously, like many other state-owned banks, the dividend payment option of VietinBank was cash dividend, which is also a significant contribution to the State budget. In 2018, the proposal to pay dividends in shares of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) and VietinBank to improve CAR also received comments from the Ministry of Finance. BIDV, after a pending time, completed paying cash dividends for the previous years in November 2019.

For the plan to pay 2019 dividends, VietinBank will firstly need the approval of shareholders, in which the State Bank of Vietnam (SBV) is the biggest shareholder with ownership rate of over 64.5%.

Raising capital has been a hot issue of VietinBank for many years. The bank is in a difficult situation when the room to seek more capital from foreign investors has been blocked due to the regulation on foreign ownership room (maximum of 30%). At the same time, the State ownership at the bank has also reached the floor level of 65%, while the abilities to mobilise capital from existing shareholders (including the State shareholder) or increase capital by paying share dividends are both difficult to be realised.

VietinBank is also one of the last banks to receive approval for the restructuring plan associated with bad debt settlement in the period of 2016 2020, as it was not approved until the end of 2018. After more than a year of implementation, VietinBank revealed that it proposed the government and other ministries to approve the charter capital raising plan, and the capital increase policy has been approved.

“Currently, the Ministry of Finance and the SBV are coordinating to submit to the government for official approval of VietinBank’s capital raising plan. The bank’s representative also said that it has comprehensively satisfied the Basel II standards in terms of governance structure, regulations, internal control regulation, and information technology system.

Immediately after being approved by the government and successfully raising capital, the bank affirmed that it would fully meet the requirements of Basel II. To improve CAR, in 2019, VietinBank also increased Tier-2 capital by issuing 5.550 trillion dong of secondary bonds.

 


Category: Finance, Vietnam

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