Banks with capital safety ratio (CAR) at around nine percent will have to consider raising Tier 1 or Tier 2 capital. Therefore, not only small banks but 10 commercial banks that pilot applying Basel II standards have to make efforts to increase chartered capital.
This is the reason why banks that have been approved in principle are about to issue shares to increase capital in the form of paying dividend, issuing to existing shareholders, employees; selling stake to foreign investors.
For example, on May 31, MB was approved by the State Bank to increase chartered capital from 18.155 trillion dong to 21.604 trillion dong.
Under the capital raising plan approved at the annual general meeting, MB will issue shares to make the second round dividend payment in 2017 (five percent equals to more than 90.7 million shares) and increase capital from equity in line with the regulation (14 percent equals to more than 254 million shares or bonus shares).
The source will be taken from MB’s after-tax profit in 2017 after putting provision for funds and owners’ equity. The volume of shares issued to existing shareholders is not restricted. It is expected that the implementation period will be in Q2-Q3/2018.
Under the plan, 1.319 trillion dong out of 3.449 trillion dong additional chartered capital will be used to invest in capacity, including the construction of headquarters, branch offices, investment in other technology and equipment. The remaining 2.130 trillion dong will be used in other business operations.
Earlier, on May 28, VPBank was approved by SBV to raise chartered capital from over 15.7 trillion dong to more than 25.2 trillion dong under the plan approved by the annual general meeting (AGM).
Specifically, at the 2018 AGM, VPBank shareholders approved the capital raising plan through five share issuances including the share issuance to existing shareholders to make dividend payment and make bonus payment at 30 percent; ESOP issuance with the total par value of nearly 337 billion dong; separate share issuance with the maximum ratio of 15 percent prior to the issuance; bonus payment from the separate share issuance; bonus share issuance from Treasury shares after acquiring dividend preference shares.
Meanwhile, VIB presented capital raising methods at the recent AGM, bringing chartered capital to 8.100 trillion dong (from 5.644 trillion dong) in 2018 under such methods as treasury share offering for sale, separate issuance of new shares, bonus share division from the chartered capital supplementation reserve fund, investment and development fund, retained profits and share capital surplus.
Capital increase demand is the urgent issue of the banking system because the equity increase of credit organisations in 2017 was slower than the increase of total assets.
Statistics of the National Financial Supervisory Commission (NFSC) show that the Risk-weighted assets increased 9.3 percent while the equity of credit organisations last year was only estimated to increase 4.6 percent. Therefore, the capital increase target of banks will be higher in 2018, especially when the deadline to apply Basel II is close.
In particular, state-owned commercial banks suffer from the largest and lengthened increasing pressure because currently, the CAR of these banks has approached nine percent. If Basel II is applied, the CAR will decrease to less than eight percent. Therefore, to meet Basel II standards, these banks need to increase their equity by 1.8-2 times from the current level.
NFSC supposes that from now till the end of 2020, the demand for equity increase of banks is quite large. However, most small banks are likely to complete the plan because bank share price is having positive developments. Positive business operations create momentum to support the capital increase through the dividend payment by shares, and sale to investors.
Noticeably, according to finance and monetary analysts, in the context of large capital increase pressure, it is difficult to avoid the fact that the M&A wave will continue for small banks because for these banks, listing is not necessarily the optimal method to mobilise capital, and is difficult to draw the attention of investors. That is not to mention, the capital divestment process in the banking sector to meet regulations following the roadmap of Circular 36/2014/TT-NHNN is getting “hotter”.
