Bank’s annual shareholders meeting (ASMs) season is coming, and one of the big issues interested by shareholders is still dividends. Looking from the pressure of capital raising which the entire banking industry is facing, it is forecasted that retaining profits and distributing dividends in shares will continue to be the choice of most banks.
In 2018, Vietnam Prosperity Commercial Joint Stock Bank (VPBank) issued more than 925.6 million shares to increase charter capital to nearly 25.3 trillion dong, including more than 452.4 million shares for paying dividends from the undistributed after-tax profit in 2017, more than 15.4 million shares for raising capital from the reserve fund for supplementing charter capital, and more than 457.7 million shares for raising capital from the share capital surplus.
Similarly, Military Commercial Joint Stock Bank (MB) in 2018 successfully increased its charter capital via the distribution of dividends in shares. Specifically, MB’s charter capital was increased by 3.450 trillion dong to nearly 21.605 trillion dong, thanks to the private placement of 345 million shares for paying dividends in the second phase of 2017 and the distribution of bonus shares at a ratio of 14%. Vietnam Technological and Commercial Joint Stock Bank (Techcombank) distributed dividends in bonus shares at a ratio of 1:2 in the third quarter of 2018, increasing its charter capital by threefold to 34.956 trillion dong.
In the last quarter of 2018, many banks also rushed in this issue. For example, Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) issued 37.5 million shares for dividend payment and 200 million shares for existing shareholders in order to raise charter capital to 9.875 trillion dong. An Binh Commercial Joint Stock Bank (ABBank) also approved a plan to issue shares to distribute dividends at a ratio of 7.4%, equivalent to an issuance of more than 39.3 million shares.
Southeast Asia Commercial Joint Stock Bank (SeABank) carried out three share issuance for employees, for dividend payment, and for selling to existing shareholders with a total volume of more than 222.2 million shares, raising its charter capital to 7.688 trillion dong. Tien Phong Commercial Joint Stock Bank (TPBank) plans to pay dividends in shares and distributed bonus shares to existing shareholders at a total ratio of 28 percent with the objective to increase charter capital to 8.566 trillion dong.
At this time, when the ASM season is close, dividend payment continues to draw market attention. VPBank this year is the first bank to disclose information about this issue, but it is not a good news for shareholders after a year of waiting.
Specifically, VPBank has taken opinions of shareholders on the approval of the 2018 consolidated and separate financial statements audited by Ernst & Young Vietnam (E&Y Vietnam), and the 2018 profit distribution plan. The bank said that in 2018 the bank recorded more than 7.355 trillion dong of after-tax profit. The total provisions for all funds (including fund for supplementing charter capital, financial reserve fund and investment and development fund) reached over 3.942 trillion dong.
Accordingly, the total undistributed profit in 2018 after deducting funds of 3.431 trillion dong will be fully retained for the purpose of supplementing capital for VPBank’s operation.
This is understandable, because although banks’ profits have improved, the pressure of raising capital to meet the Basel II standards is still very huge so it is difficult to expect cash dividends. Even banks with state capital have also repeatedly proposed to pay dividends in shares instead of cash in order to increase capital.
Recently, leader of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) has also proposed a profit distribution plan in which VietinBank shall retain profit to increase capital or distribute dividends in shares if its Capital Adequacy Ratio (CAR) is not sufficient for the development of lending for supporting economic growth according to the government’s goal. The cash dividend can only be carried out when the bank’s CAR meets the regulations.
In the second half of 2017 and the first half of 2018, bank stocks were the leading factor on the stock market. While the stock price of VPBank on the date of listing and in mid-August 2017 was only around 39,000 dong per share, it reached nearly 70,000 dong per share in mid-April 2018, up by about 80%.
Information about the listing of Techcombank also pushed its stock price from 35,000 dong per share on the Over-The-Counter (OTC) market to 128,000 dong per share on the day it was listed on the stock exchange June 4th 2018. At that time, many people said that shareholders will still benefit if the bank pays dividends in shares. However, the uptrend of Techcombank shares did not last long and started to reverse from the second half of 2018.
Statistics showed that closing the year 2018, only four out of 17 bank stocks listed on the HCM City Stock Exchange (HoSE), Hanoi Stock Exchange (HNX) and Unlisted Public Company Market (UPCoM) increased in price, including Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), National Citizen Commercial Joint Stock Bank (NCB), Vietnam International Commercial Joint Stock Bank (VIB) and Export Import Commercial Joint Stock Bank (Eximbank), while the stock prices of other banks recorded decline. According to a financial expert, thanks to the positive developments of the stock market two years ago and since stocks were “covered” by good information and profit figures before listing, the prices are high, but that will negatively affect the latter.
This disadvantage is growing when the stock market started to cool down and created more pressure to dilute stocks, along with the impact of banks’ share issuance for paying dividends. For Techcombank, its share issuance helped significantly increase charter capital, but the stock price on the ex-right date would fall by a third to ensure that the bank’s market capitalisation remains unchanged after the stock split.
Accordingly, from the very high stock price of 128,000 dong per share on the listing date, Techcombank shares were traded at only 26,600 dong per share in early March 2019. In such context, paying dividends in shares continues to be undesirable by shareholders.
However, that is not what shareholders can decided. VPBank was the first to take shareholders opinions on retaining profits, and according to market analysts, other banks will comply with the regulations of the State Bank of Vietnam (SBV), because according to the SBV’s Inspection and Supervision Department, shareholders have the right to decide on the dividend rate as stipulated in Article 59 of the Law on Credit Institutions.
However, the law also regulates that the SBV may apply some measures related to dividend distribution to ensure the operation safety of the system. In fact, from 2013 until now, the SBV has approved the dividend payment rate of banks and the banks are encouraged to pay dividends in shares to increase charter capital, support credit growth and prevent risks.
Last year, when numerous shareholders requested the bank to make dividend payment, Duong Cong Minh, Chair of Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) said that the bank in the end of 2018 or 2019 would propose the SBV for approval to set aside a part of its profit to pay dividends to shareholders. Only when the bank completes its restructuring, dividends can then be paid regularly.
The deadline to apply the Basel II standards is close, but only two out of the 10 banks piloting the Basel II application have officially been recognised, including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) and VIB. Even though, these banks will continue to face the pressure of increasing capital to ensure the CAR. For the remaining eight banks, raising capital to meet the Basel II is even more necessary and many other banks which are restructuring must also comply with this requirement. In this situation, cash dividend payment seems to be very far from being realised.
