In the first half (H1) of 2019, bank stocks remained quiet although the business results were positive. Facing the downtrend of stock prices, many banks have planned to spend trillions of dong to repurchase shares as treasury stocks.
The Board of directors (BOD) of Vietnam Prosperity Commercial Joint Stock Bank (stock code: VPB on HCM City Stock Exchange (HoSE)) has decided to buy 50 million VPB shares, equivalent to two percent of the outstanding shares in the market to be used as treasury shares.
Accordingly, VPBank will buy in the price range of 20,000 24,000 dong per share in the fourth quarter (Q4) of Vietnam. Thus, VPBank will have to spend about one trillion dong to own 50 million treasury stocks as mentioned. The capital source used to buy this amount of stocks is from the bank’s undistributed profit.
VPBank currently has more than 73 million treasury shares, equivalent to 2.894 percent of charter capital. If the repurchase is successful, the bank will hold a total treasury shares accounting for approximately five percent of charter capital.
VPBank affirmed that the acquisition of treasury shares would not affect the bank’s capital safety indicators. Based on VPBank’s financial statement, by the end of June 2019, the bank’s equity is more than 38.2 trillion dong. This amount of equity keeps VPBank’s capital adequacy ratio at 11.2 percent, higher than the minimum limit of eight percent, calculated according to Basel II standards. In July 2019, VPBank also successfully issued 300 million US dollars of international bonds listed on the Stock Exchange of Singapore.
Similarly, HCM City Development Commercial Joint Stock Bank (HDBank) said that in the recent time, the prices of many bank stocks, including HDBank’s have fallen significantly due to the effects of macroeconomic factors and fluctuations on the Vietnam’s stock market. Therefore, HDBank’s BOD issued a resolution about repurchasing a maximum of five percent of the outstanding shares as treasury shares.
The capital source for the repurchase is from the equity surplus, undistributed after-tax profit, and other equity funds used to supplement the charter capital as prescribed.
Previously, Tien Phong Commercial Joint Stock Bank (TPBank) also registered to buy a maximum of 24 million treasury shares in one month to reduce the amount of shares in circulation, supporting the transactions and increasing shareholder value.
In the stock market, VPB shares were in a downward trend in 2018. The stock’s market value is currently above 20,000 dong per share, less than half of the peak set in early April 2018, and down by 16 percent compared to the first trading session when VPB shares were listed. However, in a notice sent to shareholders, VPBank’s BOD said that the opportunities and growth potential of the bank are still well evaluated.
According to VPBank’s leader, the repurchase of VPB shares as treasury shares is considered investing in a valuable asset which has high profitability in the future.
Meanwhile, HDB shares of HDBank are currently traded at 26,000 dong per share compared to the price at its listing day in 2018 which was 32,000 dong per share. Analysists said that HDBank’s market price is lower than the reasonable value and does not correctly reflect the high growth and sustainable development potential of the bank.
HDBank’s BOD believed that its stock price will increase positively in the near future and the repurchase of the issued shares as treasury shares at the currently price zone not only helps stabilise the stock price but is also an investment which brings high efficiency to the bank and shareholders.
In fact, this is not the first time those banks spent huge amount of capital to collect treasury shares to support the stock price. In 2018, when the prices of bank stocks fell deeply, senior leaders of HDBank, Asia Commercial Joint Stock Bank (ACB), Vietnam Technological and Commercial Joint Stock Bank (Techcombank) made the move. According to the principle of investment, the purchase of treasury shares will reduce the amount of shares in circulation, thereby increasing Earning per share (EPS) and benefiting existing shareholders.
From the beginning of the year until now, the VN Index has risen by over 14 percent compared to the beginning of the year. Statistics of 18 bank stocks show that the capitalisation of this sector increased by about 14 percent.
The stocks of major banks such as VPB, TCB (of Techcombank), and MB (of Military Commercial Joint Stock Bank MB) have continuously recorded growth in business activities, particularly achieving impressive profit in H1 2019. Business reports in H1 2019 of 25 banks in the system pointed out that the total profit banks attained was more than 53.076 trillion dong, up by 18.4 percent compared to H1 last year. Meanwhile, the prices of bank stocks, including the above mentioned stock codes, saw reverse movements.
Dr Bui Quang Tin, a banking and finance expert, said that although banks’ bad debt settlement process have seen improvements, it is still a burden of many banks. That is the reason which negatively influenced the banking stocks in recent time. According to Tin, if looking at the long-term and having careful selection among efficient banks, investing in bank stocks still has many prospects.
VNDirect Securities Company forecasted that in the last six months of 2019, the banking sector’s Net Interest Margin will only slightly increase at some banks, and the asset yield will improve thanks to a sharp increase in retail lending.
