In the annual general meeting (AGM) season of the banking industry this year, most banks propose shareholders the plan to significantly increase charter capital to strengthen safety in operation and to meet Basel II standards. However, what makes shareholders wonder is the profitability of the capital increase in the context of the difficult market due to the Covid-19 epidemic.
In the current market context, it is difficult for banks to issue more shares to shareholders and this year, the State Bank of Vietnam (SBV) requested banks to not pay cash dividends. Therefore, many banks make large dividends in shares to increase charter capital, because it is an urgent issue for banks when they have to meet Basel II standards and more.
At the AGM held on June 15th, Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank, LPB) submitted shareholders a plan to increase charter capital by paying dividends in shares and offering shares privately to foreign investors. Specifically, the capital raising plan is carried out in two phases. In the first phase, the bank will issue shares to pay dividends to existing shareholders at a ratio of 10%, expected to be completed in 2020. In the second phase, the bank will increase capital by conducting a private placement for foreign investors at an offer rate of no more than 4.99%.
According to LPB, increasing charter capital is necessary to help banks comply with strict regulations on the operational safety indicators of the SBV and continue to meet higher standards of Basel II. At the same time, the charter capital increase is also to improve financial capacity, expand operational scale and competitiveness, creating resources for sustainable, safe and effective development in the coming years.
On June 13th, HDBank’s 2020 AGM approved the plan to distribute profits in 2019 and issue bonus shares from the share capital surplus. HDBank’s shareholders will receive dividends in shares at a ratio of 50 percent and bonus shares at a ratio of 15%, equivalent to a total of 65%.
With the plan to issue shares to pay dividends, the distribution ratio is 100:50, which means that shareholders owning 100 shares will receive 50 new shares. HDBank expects to issue a total of 482.96 million shares, equivalent to 4.830 trillion dong at par value (10,000 dong per share).
Regarding the issuance of bonus shares, the distribution ratio is 100:15, which means that shareholders owning 100 shares will receive 15 bonus shares. Thereby, HDBank aims to issue 144.89 million shares, equivalent to a value of at least 1.449 trillion dong at par value.
The source for issuing shares to pay 2019 dividends and issuing bonus shares of HDBank is taken from the accumulated undistributed profits and the share capital surplus of the bank in the 2019 audited consolidated financial statement after making deductions for funds. HDBank’s charter capital after completing the 2020 capital raising plan will be more than 16.088 trillion dong.
The AGM of Saigon Commercial Joint Stock Bank (SCB) on May 29th approved the plan to increase charter capital to more than 20.2 trillion dong in 2020. Accordingly, SCB’s shareholders agreed to the plan to increase capital by offering 500 million shares to existing shareholders, domestic and foreign investors, equivalent to a value of five trillion dong at par value. The issuance price shall not be lower than par value. If the issuance is successful, SCB’s charter capital will increase from 15.232 trillion dong to 20.232 trillion dong.
Military Commercial Joint Stock Bank (MB) will also propose shareholders for approval of the charter capital raising plan by issuing shares to pay dividends at a ratio of 15%. The time is expected to be in the third to fourth quarter (Q4) of 2020. Currently, MB’s charter capital is 23.370 trillion dong. After completing this mentioned plan, the charter capital of MB will increase to 27.988 trillion dong.
MB also has plan to distribute treasury shares to existing shareholders. The bank is currently holding 25.6 million treasury shares and expects to distribute all of this volume to existing shareholder. The implementation time is from Q4 2020 to the end of A1 2021.
Meanwhile, the SBV has approved some banks to increase charter capital, such as Nam A Commercial Joint Stock Bank (NamABank) with the plan to increase capital from over three trillion dong to five trillion dong by issuing shares to shareholders; Orient Commercial Joint Stock Bank (OCB) with the plan to increase charter capital from 7.899 trillion dong to more than 8.767 trillion dong in mid-March 2020, after the bank’s shareholders agreed to the private placement of nearly 86.9 trillion dong, equivalent to 11 percent of the charter capital of Aozora Bank (Japan). OCB has plan to distribute 2020 dividends at ratio of 25 to 27 percent in shares.
Concerns about the plan to use capital
OCB’s Board of directors (BOD) said that the total amount of capital gained after the capital increase will be supplemented to the bank’s capital for investment and lending. Previously, OCB’s strategic foreign investor BNP Paribas (France) sold all of it sharing of 74 million shares, equivalent to 18.68 percent of charter capital of OCB after 10 years of investment. According to OCB, the maximum ownership of foreign investors in OCB is 4.98 percent of charter capital, currently held by a fund of Vina Capital.
OCB will hold its AGM on June 20th in HCM City. The bank targets a profit target of 4.4 trillion dong, up by 36 percent compared to the previous year. OCB expects to reach total assets of 150 trillion dong in 2020, up by 27 percent compared to the end of 2019.
By the end of Q1 2020, OCB recorded a pre-tax profit of 1.107 trillion dong, up by 107 percent compared to the same period of last year, equivalent to 25 percent of the year plan. At the same time, the bank’s bad debts were 1.299 trillion dong, slightly down compared to the beginning of the year.
At the 2020 AGM of SCB, many shareholders expressed concerns about the profitability of the supplemented capital when the bank’s charter capital will be raised to above 20 trillion dong this year in the context when the pandemic has hindered the growth of credit. Answering this question of shareholders, SCB’s general director Vo Tan Hoang Van said that of the five trillion dong collected from the issuance, the bank plans to use four trillion dong to supplement business capital, focus on developing credit, particularly credit for hi-tech applied agriculture and retail segments.
SCB will also promote investment in government bonds to supplement liquidity assets in order to consolidate and improve the liquidity reserve ratio. The bank will use 500 billion dong to invest in fixed assets, modernising information technology; and the remaining 500 billion dong will be invested in constructing, repairing, upgrading of the head office, and SCB brand identity system.
With a total amount of more than 6.278 trillion dong gained after the issuance of additional shares, HDBank plans to spend one trillion dong to invest in fixed assets to serve the investment in headquarter, network expansion, modernisation in banking technology. At the same time, the bank will use three trillion dong to supplement medium and long-term capital for medium and long-term loans. The remaining will be added to the working capital.
In 2020, HDBank plans to increase total assets by 33 percent compared to 2019, reaching over 305 trillion dong; mobilisation (including mobilisation from customers and valuable papers) by 35%; outstanding loans by 16%; and control bad debt ratio below two percent. At the same time, HDBank also aims to bring its pre-tax profit to a new record high level of 5.661 trillion dong, 13 percent higher than 2019. The profit target set at over five trillion dong this year, according to HDBank’s Acting deputy Chair Nguyen Thi Phuong Thao, is based on the bank’s five-year development strategy with Return on Equity (ROE) always set above 20%.
This year, taking into account the impacts of the Covid-19 pandemic and HDBank’s financial capacity and risk management, the bank’s BOD has made a relatively prudent plans. HDBank still targets ROE of more than 20 percent and total asset growth of more than 30%. HDBank’s leader said that the bank clearly identifies the segment of its credit growth. At the same time, it will expand credit under the direction of the SBV.
Notably, at this year’s AGM, HDBank also proposed shareholders the plan to issue bonds overseas under the euro Medium Term Note in US dollars to mobilise about one billion US dollars. The expected time is 2020 2-24. According to the bank’s BOD, bonds will be issued on international markets to investors outside the US, and listed at the Singapore Stock Exchange.
Answering shareholders’ question about why HDBank decides to issue bonds in the international market and the advantages of this move, Thao said that with the current scale of HDBank, joining the international capital market is inevitable. This is the time for HDBank to supplement its long-term capital with low costs, supplementing capital for the projects to recover the economy after the Covid-19 pandemic.
Regarding the bond private placement, HDBank will only issue privately to strategic partners with specific plans in order to bring the best benefits to the bank.
In 2020, HDBank will convert its HD Saison finance company to a joint stock model, carry out an Initial Public Offering (IPO) for HD Saison, and see for strategic partners when having favourable conditions to concert into capital contribution.
Banks’ leaders believed that it is necessary to increase capital this year to meet the requirements of the SBV about enhancing the bank’s financial capacity, creating a foundation to develop a network, expanding market share and business scale.
On the other hand, the increase of capital ensures compliance with safety indicators in banking activities, improves risk management operating under Basel II standards.
Banking expert Dr Nguyen Tri Hieu said that supplementing charter capital to reinforce the “safety net” is very necessary. According to Dr Hieu, if the situation of a thin capital continue, banks will be vulnerable and not be able to support the economy to overcome difficulties.
