Banks struggle to increase capital

(ĐTTCO) - The Annual General Meetings (AGM) at several banks called for the urgent need to increase charter capital. To meet the minimum capital amount stipulated by Basel II, effective from 1 January 2020, fourteen credit institutions have yet to meet the requirements of Circular 41/2016/TT issued by the State Bank of Vietnam (SBV).

Illustrative photo.

Illustrative photo.

Pressure mounts on banks

The main agenda at all AGMs this year is to increase charter capital in all Commercial Banks, both big and small. The biggest four banks are targeting this agenda aggressively. VietinBank proposes keeping all profits, or paying dividends with shares, in order to increase charter capital. Vietcombank has also presented a plan to increase charter capital to its shareholders, and paying 18% of the 2018 dividends. This plan will be implemented in the second half of 2020, and the Board of Directors will decide further after their plan is approved by the SBV. Vietcombank expects to raise VND 6,575 bn to add to its total capital of VND 43,764 bn.

At all Joint Stock Commercial Banks (JSCB), several plans have been approved on ways to increase capital.  MB aims to increase its charter capital from VND 24,370 bn to VND 27,987 bn in 2020, an increase of VND 3,617 bn. This amount will help place MB among the top group of banks with the largest capital amounts, at close level with BIDV, Vietcombank, VietinBank, Techcombank and Agribank.

HDBank plans to raise its charter capital from VND 9,810 bn to more than VND 16,088 bn; SHB is targeting an increase of VND 19,313 bn; TPBank wants to increase its existing VND 8,566 bn to VND 10,199 bn; VIB aims to increase VND 9,245 bn to VND 11,094 bn; and NamABank wants to add VND 3,000 bn to its charter capital, while NCB has said it will put in another VND 3,000 bn to reach a total of around VND 10,000 bn.

Compared to state-owned commercial banks, private commercial banks find it easier to increase their capital because they already have high liquidity, which has enabled these banks to distribute dividends at high percentage or keep dividends to raise capital. TPBank and VIB have approved to pay 20% dividends with shares and HDBank has issued bonus shares and distributed dividends totaling 65%. ACB will pay 30% dividends with shares; MB will pay 15% dividends; SHB has planned to distribute 10% dividends with shares from the 2019 profits; and OCB will pay for 25% to 27% dividends, and has already successfully issued separate shares to Japanese investor Aozora. OCB bank is also expected to increase its charter capital to more than VND 11,275 bn. ABBank and Techcombank have proposed to keep all net profits to strengthen business capital sources.

Banks try to hold balance

Banks have made their efforts clear that they are all moving towards increasing capital. Although banks made huge profits last year, this year the Covid-19 pandemic badly impacted any smooth functioning in operations which is why at AGMs of several banks efforts are being directed towards increasing capital and paying off their 2019 dividends with shares at rather high percentage. This year banks are not expecting to earn huge profits, and it will be extremely hard to increase capital, either by distributing dividends or keeping profits.

Capital increase plans of banks presented in their 2020 AGMs makes it clear that they will first meet with SBV requirements for strengthening their financial status and capacity, expand credit market shares and business scale, and diversify banking services. Second, they will ensure they can meet all safe requirements in banking services and improve risk management capacity as stipulated in Basel II. Third, they will add significant amounts to medium and long-term capital in the process of reducing short-term capital for medium and long-term loans to 30% this year. Fourth, they will invest in infrastructure and facilities for modern information technology to boost daily business performance.

Financial experts believe that compared to the 2008 global financial crisis, the equity and total assets of the banking system have remained rather stable over the last few years. As required by SBV, ten Commercial Banks must meet Basel II Pillars 1 to 3 for 2019, and all Commercial Banks must comply with these requirements by 2020. Therefore, pressure continues to mount for increase of capital in all banks. Moves by Commercial Banks indicate that they are bending over backwards to meet Basel II requirements, though such steps are now far behind schedule, having been hit severely by the Covid-19 pandemic.

Even those banks that were once confident in meeting Basel II requirements are now having to strive to gather in large amounts of capital in a shorter space of time. Banks must now increase their Capital Adequacy Ratio (CAR), because they have far lower CAR to meet Basel II requirements. Moreover, the sudden impact of the Covid-19 pandemic has caused the bad debt ratio to go up and asset ratio to fall, resulting in changes to CAR.

Substantial increase in capital is a significant measure for the banking system to take for possible future complicated scenarios. Nonetheless, it appears that plans for increasing capital are just positive signs for the sector, but things have not been as satisfactory as expected for shareholders who always want dividends in cash. Although banks cannot satisfy all shareholders just by providing cash dividends, banks still hope that their shareholders will sympathize with them and support their current best efforts and strategies in reviving the banking system.

Thiên Minh

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