While many banks are dealing with capital adequacy ratios, some other banks have abundant self-capital, the capital adequacy ratio (CAR) is quite high, ready to spend money to buy treasury stocks although this reduces CAR.
HCM City Development Joint Stock Commercial Bank (HDBank) recently approved to collect shareholders’ opinions in 2019 on the acquisition of no more than five percent of HDB shares issued to fund stocks, equivalent to about 49 million shares. The last registration date is September 4. Time to receive comments is from September 19.
The market price when closing the trading session on August 15 was 26,350 dong per share, HDBank expected to spend up to about 1.3 trillion dong to buy the above treasury stocks.
Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) has recently consulted shareholders in writing on the purchase of treasury stocks. Accordingly, the last registration date to make a list of shareholders is August 21. VPBank has not disclosed the amount of treasury stocks it expects to buy. Reportedly, this bank currently has 73.2 million treasury stocks.
Also in this year, two banks bought a large amount of treasury stocks, namely Tien Phong Commercial Joint Stock Bank (TPBank) and Military Commercial Joint Stock Bank (MB). Specifically, in June 2019, TPBank completed buying 24 million treasury shares, equivalent to 2.8 percent of this bank’s chartered capital. The average trading price was 26,117 dong per share. It means TPBank spent over 600 billion dong to buy the above treasury stocks.
Previously, in March 2019, MB purchased 47 million treasury shares with the average transaction price of 21,999 dong per share, equivalent to the total amount of up to 1 trillion dong.
The common point among banks buying a large amount of treasury stocks was that CAR was quite high and the stock was trading at a relatively low Price to Earning (P/E) (meaning the stock price was cheaper than the common ground). For example, VPBank’s CAR at the end of 2018 was 12.9 percent, HDBank was at 12.1 percent, MB was at 10.9 percent and TPBank was at 10.2 percent, much higher than the regulated level of nine percent of the State Bank of Vietnam (SBV).
Meanwhile, P/E ratios (current market price compared to 2018 net profit) of VPBank, HDBank, MB and TPBank were less than nine times, lower than the industry average (about 13 times) and lower than the average of market (about 17 times).
The repurchase of treasury stocks will reduce CAR, as treasury stocks were not included in Tier One capital in accordance with SBV’s regulations. Therefore, banks are willing to spend money to buy treasury stocks with a high CAR.
Each bank has a different purpose when buying treasury stocks. However, basically, the most common purpose is to reduce the supply of stocks to support the market price, and at the same time, take advantage of buying back stocks to sell at high prices later.
However, it should be noted with the recent phenomenon, when some banks reward treasury stocks for employees at much lower prices than market prices.
