A source from the State Bank of Vietnam (SBV) said that Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV, stock code on HCM City Stock Exchange (HoSE): BID) expects to complete increasing capital in the third quarter and meet the Basel II standards.
Sharing with Nguoi Dong hanh newspaper, Chair of BIDV’s Board of directors (BOD) Phan Duc Tu said that the bank has submitted the Basel II application documents to the SBV and is awaiting approval. BIDV has also completed its capital increase through issuing shares to KEB Hana Bank (South Korea) and expects to receive money from the partner in October.
Two months ago, BIDV’s BOD approved a private offering of 603.3 million shares, equivalent to 15 percent of charter capital to KEB Hana Bank at the price of 33,640 dong per share. The total transaction value was estimated to reach more than 20.295 trillion dong. If successful, BIDV’s charter capital will increase from 34.187 trillion dong to more than 40.220 trillion dong. The State will reduce ownership ratio at the bank from 95 percent to 80.8 percent.
In addition to the restructuring of assets and issuance of bonds to raise Tier-2 capital, increasing charter capital is one of the options to help banks improve the minimum Capital Adequacy Ratio (CAR) and meet all Basel II’s conditions. For BIDV, at the annual general meeting (AGM) held in the beginning of the year, the bank received approval from shareholders to increase charter capital through four sources including public offering, Employee Stock Ownership Plan (ESOP) with a total of 340 million shares, and probably the issuance of shares from retained profits, in addition to the sale of shares to KEB Hana Bank.
By the end of 2018, BIDV had a total of 12.341 trillion dong of undistributed profit. If using this source, the bank’s charter capital will be 1.5 times higher than the current level. However, in the last two years, despite being urgent in capital raising issue, BIDV still had to distribute dividends in cash as required by the SBV and Ministry of Finance due to the budget revenue and expenditure plans.
Reports of the bank’s dividend distribution at each AGM all offered a double option of distributing dividends in shares or in cash, and the option was finalised based on decision of the bank’s biggest shareholder the SBV.
Recently, the SBV is collecting comments on the Draft Circular regulating the purchase, sale and handing bad debts of Vietnam Asset Management Company (VAMC), which stipulates that credit institutions which sold bad debts and received special bonds shall not distribute dividends in cash to increase financial capacity and create a source for settling bad debts until the special bonds are paid.
BIDV is one of the banks holding a large volume of VAMC bonds with a total value of 12.854 trillion dong by the end of June, of which 7.879 trillion dong were provisioned. If the draft circular is approved, it is said to remove the difficulty for BIDV.
In the first half of 2019, BIDV’s bad debt ratio increased by eight basis points, reaching 1.98 percent with a total value of 21.121 trillion dong. Considering the total system size, the total debts in group three to five of BIDV accounted for 25 percent, the highest level among all banks.
In addition, BIDV’s irrecoverable debts soared by 3.360 trillion dong in the first half of 2019 to 10.492 trillion dong, accounting for nearly 50 percent of the bad debts the highest number in the system. The bank’s substandard debts also increased by more than 500 billion dong to 6.080 trillion dong. Only the bank’s doubtful debts fell by more than 1.6 trillion dong.
In a report, Viet Capital Securities Company (VCSC) stated that BIDV needs to take more efforts to settle bad debts and improve credit risk. The bank’s total credit risks including attention-bearing debts, bad debts and accumulated debts accounted for five percent of its outstanding credit in the first two quarters, nearly doubling the average number of other banks.
According to VCSC, this comparison did not include BIDV’s outstanding VAMC bonds. Particularly, the securities company mentioned that even after clearing off all VAMC’s bonds, BIDV’s risk provisioning costs continued to increase to settle on-balance sheet bad debts. By the end of June 2019, the bank’s provisions for risks were 15.348 trillion dong, equivalent to a debt coverage ratio of over 75 percent.
VCSC stated that in addition to risk provisioning, the efforts to improve risk management are needed for BIDV in order to limit the formation of new problem loans.
In the first half of the year, the net interest income of BIDV was 17.638 trillion dong, up by 1.2 percent over the same period of 2018. The bank’s outstanding loans to customers increased by 7.7 percent to 1,000 trillion dong. However, its pre-tax profit fell by five percent, reaching 4.708 trillion dong.
VCSC’s report noted that BIDV’s loan yield dropped by 21 basis points over the same period of 2018 and nine basis points compared to the previous quarter for the Group 1 loans due to rising costs of deposits which reduced competitiveness and the narrowing down of the bank’s retail and small and medium-sized enterprise (SME) lending. The outstanding credit in these two segments only increased by five percent, less than the increase in total outstanding loans.
BIDV’s current limited capital is the main reason limiting the growth of long-term loans at the bank. VCSC forecasted that the loan yields will improve slightly from 2020 with financial and strategic support from KEB Hana.
Sharing the same view, KIS Vietnam also believes that the deal with KEB Hana Bank will be a stepping stone for the bank’s growth. According to KIS Vietnam, the management experience of KEB Hana Bank is in line with Basel II and Basel II, and will assist BIDV in its loan portfolio restructuring plan by focusing on retail and SME customers, increasing profits and controlling risks.
The third quarter is about to end, the market is still waiting for BIDV to finish raising capital and become the next bank to meet Basel II standards.
