Among the 18 bank stocks listed on Hochiminh Stock Exchange (HOSE), Hanoi Stock Exchange (HNX) and traded on Unlisted Public Company Market (UPCoM), three stocks, namely LPB, NVB and KLB, fluctuated around par values as of July 6. According to experts, shares below par value will make it difficult for banks to raise capital in the stock market.
After nearly three years of being listed on UPCoM, KLB’s share price of Kien Long Commercial Joint Stock Bank (Kienlongbank) has only fluctuated around 9,000 10,000 dong per share (in the trading session on July 7, KLB traded at 9,900 dong per share). It is worth mentioning that, at the general meeting of shareholders in 2020, Kienlongbank’s shareholders approved the business plan in 2020 with the target earning before tax of 750 billion dong, nearly nine times higher than the profit achieved in 2019.
Before that, at the end of 2019, Kienlongbank’s profit before tax was only 86 billion dong, down 70 percent compared to 2018 and only completed 28 percent of the year plan. However, according to some analysts, although the business results are expected to grow strongly, the path of KLB shares will not be easy in 2020 due to the bank’s bad debts. Financial statements for the first quarter of 2020 of Kienlongbank showed that the bank’s group 5 debts soared by 1.888 trillion dong, equivalent to an increase of 790%. Bad debts increased by 1.898 trillion dong, equivalent to 555%. Bad debt ratio rose dramatically from 1.02 percent to 6.62%.
Due to high bad debts, Kienlongbank suddenly raised its provision for credit risk 37 times compared to the same period in 2019, accounting for nearly 69 billion dong. That is the reason why the profit before tax and after tax have dropped by 23 percent y-o-y to over 57 billion dong and 46 billion dong.
Similarly, for many years, LPB shares of Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank) were not much better when it only revolved around face value. From the beginning of 2020 until now, LPB shares fluctuated around 7,000 9,000 dong per share. In the trading session on July 7, LPB shares traded at 8,500 dong per share.
“Road to face value” of LPB shares is also longer when the bad debts of LienVietPostBank is increasing. Financial statements for the first quarter of 2020 showed that the bank reached 485.6 billion dong in after-tax profit, an increase of more than 18.3 percent compared to the same period in 2019. However, the provision for credit risk of LienVietPostBank was 37.3 billion dong, a sharp increase compared to the negative figure (-) of 133.4 billion dong in the first quarter of 2019. According to the notes to the financial statements for the first quarter of 2020, non-performing loans of groups 3 and 4 at LienVietPostBank respectively grew by 123.8 billion dong and 31.7 billion dong compared to the beginning of the year.
Meanwhile, after being listed on the HNX at 11,900 dong per share in 2010, NVB’s share price of National Citizen Commercial Joint Stock Bank (NCB) (formerly Navibank) continuously went down. In the trading session on July 7, NVB shares were trading around 8,900 dong per share. Since the beginning of 2020, NVB shares have fluctuated around 8,000 9,000 dong per share.
Analysts said that banking stocks were influenced by market information. With the characteristics of the industry, the effects of shareholders, interest rates, provision expenses, and especially bad debts directly affect the market price of stocks of this industry. Therefore, the fact that the share price is deep below the face value makes it difficult for listed banks to successfully issue shares to raise capital.
“For example, if a bank’s share price is only about 7,000 8,000 dong per share, but it is issued at par value of 10,000 dong per share, investors would rather buy at market prices than at the issued price of 10,000 per share,” an expert said. “Investors who accept to buy shares issued at prices higher than the market price are mainly strategic investors who want to stick with the bank for a long time.”
This year, LienVietPostBank proposed a plan to increase capital through paying stock dividends. Accordingly, the bank will issue shares to pay dividends to existing shareholders at the rate of 10 percent of the total number of outstanding shares at the time of issuance (97,694,831 shares equivalent to 976 billion dong). The expected charter capital after the issuance of stocks to pay dividends in 2019 is 10.746 trillion dong.
According to an investor, the attraction of the stock market is the opening of capital raising channels for businesses. However, with stocks below par value of profitable businesses, investors can consider buying because the risk of price reduction is already very low, but it is impossible to avoid general market risks. In case the stock market movements are too bad, investors will not buy.
Can Van Luc, a finance and banking expert, said that one of the biggest goals of banks when being listed on the stock market is to have access to long-term capital mobilisation channels. In other words, the attraction of the stock market is the opening of capital mobilisation channels for businesses and banks. However, if the listing does not raise capital for many years, the listing will no longer matter.
