BacABank finding difficulty in raising capital

SGI

BacABank is finding it difficult to attract investors despite a medium-sized capital and listed shares on the stock market, because the bank has no brand name recognition nor can it boast of any major shareholders.

BacABank finding difficulty in raising capital

Few shareholders

In mid-September 2019, BacABank issued shares to pay for dividends and to increase capital from equity. The number it expected to issue was 100 mn shares, equivalent to VND 1,000 bn. The capital was taken from after-tax profit of 2017 and 2018, and from the reserve fund to supplement the charter capital of the bank. Currently, the charter capital of BacABank is at VND 5,500 bn, and expected to increase to VND 6,500 bn after issuing of shares.

Previously in 2018, the bank had also set a target of increasing capital from VND 5,462 bn to VND 6,000 bn by issuing additional shares which was approved at the General Meeting of shareholders. However, after that, the charter capital specified in the operation license of BacABank was only raised to VND 5,500 bn.

According to Mr. Phan Dung Khanh, Maybank Kim Eng. Securities JSC, BacABank is in a difficult position to raise capital, even though it is listed. The first reason is that the bank has no brand name recognition, and some investors only heard about this bank when it was listed at the end of 2017. Another reason is that the liquidity in the stock exchange must be quite good for developing the bank, but the liquidity of this bank was only high on the first days on the stock exchange, then liquidity fell very low. Currently, share price of BacABank is around VND 18,000/share, higher than SHB, Sacombank, Eximbank and at par with many other big banks, but it has fewer shareholders.

On 28 December 2017, BacABank inaugurated trading on UPCoM under the stock code BAB. At a reference price of VND 20,000/share, the market capitalization of BacABank after trading 500 mn shares on UPCoM was at VND 10,000 bn. After a year and a half of listing, the shareholder structure of BacABank still remains the same with charter capital of VND 5,000 bn and less than 150 shareholders, all of who are domestic shareholders. Meanwhile, many listed banks in 2017 have thousands of shareholders.

In BacABank, there is no shareholder holding more than 5% of charter capital, and eight institutional shareholders only hold a total of VND 185,65 bn of charter capital, corresponding to the ownership rate of 3,713%. The remaining 129 shareholders own 96,287% of the shares (on average each shareholder holds about 0.746% shares), equivalent to VND 4,814.35 bn of charter capital. Looking at the results of the shareholders meeting in 2019, only 121/143 shareholders attended the meeting. 143 shareholders in a publicly listed bank are a very low number. Remarkably, with such a shareholder structure and holding rate the Board of Directors of the bank have not changed much. Ms. Tran Thi Thoang owns 3.55% and has been Chairman of the Board of Directors for nearly 20 years. At the same time, Ms. Thai Huong holds 4.3% of the shares and has held the position of General Director cum Vice Chairman since the bank was established in 1994 until now.

Such shareholder structure leads to the fact that stocks cannot be traded widely, they can only trade with each other. Moreover, these shareholders will not sell strongly to drop stock prices. Therefore, after more than a year of listing, the stock price of BacABank has decreased, but it is still four times higher than before the listing. It is very difficult for BacABank to issue new shares because it cannot convince investors, and the stock market in particular is currently not as good as it was early last year.

Must Increase Capital

BacABank recorded VND 436 bn pre-tax profit in the first six months. The profit increased only slightly compared to VND 434 bn achieved in the same period last year and completed 47.4% of the profit plan for the whole year of 2019.

The main reason for this profit was credit activities with net interest income of VND 943 bn, up by 5.7% compared to the same period. In fact, interest income and similar income of this bank is as high as VND 4,285 bn. But interest expenses and similar expenses accounted for VND 3,342 bn, so the remaining net interest income is quite small. This is understandable, because BacABank is one of the banks with very high deposit rates in the market. Deposit rates for 6-month to 11-month terms in this bank are 7.7-7.9%/year, and deposit rates for over 12 months are from 8.2-8.3%/year.

BacABank can only issue shares to pay dividends / issue shares to increase share capital from more viable equity sources. But issuing to existing shareholders, the stock price will be reduced accordingly, so shareholders will consider.
In 2019, most banks are limiting credit growth at 12-13%, lower than the 14-15% of 2018. Implementing Circular 41 ahead of schedule (due to Basel II), banks will be given priority target by SBV for credit growth. However, BacABank is not included in the pilot list of Basel II applicants and there is no information for applying for Basel II soon, but this bank still targets for credit growth of 15% in 2019.

As of June 30, total assets of the bank reached VND 102,000 bn, up 5.1% compared to the end of last year. Customer deposits reached VND 77,000 bn, up 6.2% compared to the beginning of the year. Loan outstanding balance reached VND 69,200 bn, up 8.2% to VND 69,233 bn. In this current situation, BacABank will probably have to adjust credit growth in line with the limit assigned by the SBV.
In terms of credit quality, the bank had 502 bn in bad debt at the end of June 2016, up 2.8%, accounting for 0.72% of total outstanding loans. However, by 30 June 2019, BacABank had interests and fee receivables (interest receivable) which were very high, upto VND 3,142 bn. This is a problem to note because the risk of accrued interest rates has been warned by many experts in recent years. Remarkably, the financial report also showed that the total outstanding principal loan for stock trading on 30 June 2019 was nearly VND 302,600 bn, exceeding 5% of the charter capital prescribed by the State Bank.
Currently, BacABank has implemented measures to overcome this violation, but it is not clear which group of borrowers will invest in stock trading, which loan group is classified, what is debt collection capacity or what specific plan they have. Therefore, it is only expected that the above capital increase will be successful, and the increase in charter capital will reduce the debt ratio for stock investment to resolve this problem completely.

Translated by Hoa Nam

Cat Tuong

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