The shareholders’ meeting this year witnessed a series of plans to increase chartered capital approved by banks. Of which, VPBank has the highest capital raising plan, with an additional of about 12 trillion dong, to more than 27 trillion dong.
VPBank’s capital raising plan is divided into many stages, including the dividend payment in shares and bonus shares from the chartered capital reserve fund, issuance for Employee Stock Ownership Programme (ESOP), individual issuance of shares to call for investment from domestic and foreign investors and bonus share division from the share premiums.
The final issuance to increase capital will be carried out in Q4/2018. The total capital surplus is used to distribute to shareholders holding common stocks was more than 4.577 trillion dong.
This year, LienVietPostBank (LPB) is expected to issue 286.87 million shares to increase capital from nearly 7.5 trillion dong to 10.368 trillion dong through three issuances. OCB plans to raise capital by 2.5 trillion dong in 2018, along with the plan to list on Hochiminh city stock exchange latest in Q4.
VIB also approved capital raising plan from 5.6 trillion dong to 8.1 trillion dong. Or, HDBank plans to raise the chartered capital by more than 22 percent, to 11.972 trillion dong through the issuance of bonus shares and ESOP shares to employees.
A series of other banks such as SCB, VietBank, OCB, ACB, etc. also have capital raising method. The chartered capital increase of these banks is 16 percent, 31 percent, 50 percent and 16 percent in this year.
The capital raising target of banks is to enhance financial capacity and more importantly, to meet international capital standards i.e. Basel II when the roadmap for applying this standard is approaching (2020).
Calculations show that to meet regulations of Basel II, banks have to raise the expected equity by 1.8-2 times from the current moment. Credit organisations need to have specific roadmap and suitable calculation relating to the capital supplementation to meet the requirement in 2020. As such, most banks (large and small) have to make efforts to increase chartered capital since this year.
In fact, the Capital Adequacy Ratio (CAR) of many banks is quite low now, because in 2017, the equity growth of credit organisations was much slower than the growth of total assets. Therefore, in order to have sufficient resources to expand business operations and ensure operation safety, the chartered capital increase is the urgent requirement for banks.
Not this year but a few years ago, banks have had the desire to increase chartered capital. However, just a few banks with better scale and operation can easily carry out this plan. The strong growth of the stock market in 2017 and the last Q1 as well as the health of many banks have been increased after the restructuring and bad debt settlement processes which have helped banks be more confident in calling for capital.
Due to massive capital raising plan in this year, a large volume of “King stocks” are expected to be brought to the market in the second half of 2018. Will share supply exceed demand is the question being asked by many people.
The view of many experts about this issue is rather positive. Dr Nguyen Van Thuan, banking expert said capital increase pressure not only happens for small banks but for most banks. However, the fact that the development of bank share group is attracting a lot of attention from investors is a good opportunity for the capital increase in this year.
Thuan also noted that the capital increase of banks that make dividend payment in the near future is mainly carried out from the share premium and bonus share issuance or sale at par value, so the probability of success is high.
Dr Le Anh Tuan, director of Research Division of Dragon Capital said the bank’s capital increase issuance plans have been attracting the attention of investors. Typically, IPO deals of some major banks in recent time (VPBank, Techcombank, HDBank, etc.) have attracted a large number of investors, including foreign investors who poured hundreds of US dollars.
From now till the end of 2018, many banks will increase capital but the newly released shares to the stock market will not be too large because these banks mainly have small and medium scale.
Dr Tuan analysed that Vietnam economy is in the cycle of growth and that banks are the lifeblood of the economy, so there was a clear recovery in 2017. The recovery will be stronger in 2018-2019, asset quality will be better and thanks to which banks can reverse provisions for bad debt in the previous period, and profits will accordingly be better.
In fact, along with positive growth momentum in business effectiveness and financial health of banks, bank stock group has risen sharply in price and played leading role in the stock market over the last period. The P/E valuation of stocks in the group increased 27.9 times (for VCB code) as of the end of Q1/2018, much higher than the market average at the same time about 20 times.
On the stock market, there currently have nine bank stock codes listed on STC (VCB, MB, EIB, CTG, BID, STB, VPB, HDB) and three stock codes listed on HNX (ACB, SHB, NCB). These codes had high growth rate over the last period, except for EIB, STB, and NCB with slow growth rate.
Noticeably, the two “rockies” of VPB, HDB also achieved strong price increase with nearly 60 percent from 41,000 dong to 64,500 dong and HDB increased 16 percent from 39,600 dong per share to 45,600 dong per share just within the first three months of this year.
Though the stock market has had strong adjustment since the beginning of May following the long-lasting excitement period, leading to the strong decrease of shares in banking group, Nguyen Quang Thuan, CEO of StoxPlus said bank shares still have room to increase.
The aforementioned assessment of the StoxPlus CEO is based on the fact that the loans sold to VAMC will be recovered; credit income is likely to maintain the stability with the Net Interest Margin (NIM) at around three percent. Some banks with better retail background will improve NIM; the service fee attained from partners with the third financial service provider (insurance service) will lead bank profit growth, especially banks with large deposit base.
The profit growth that many banks set for 2018 was 70-80 percent and in Q1/2018, many banks reported very good profit.
Vietcombank recorded the pre-tax profit in Q1/2018 at 4.359 trillion dong, up 59 percent from the same period. Vietinbank’s pre-tax profit touched more than three trillion dong, up 20 percent year-on-year.
VPBank announced the consolidated pre-tax profit in the first quarter at 2.619 trillion dong, up 36 percent from the same period last year. HDBank also posted impressive business results in Q1 with the profit of 1.045 trillion dong, tripling from the same period of 2017. OCB and VIB reported the profit of more than 600 billion dong and 500 billion dong respectively, growing strongly from the same period of 2017.
With positive changes in business operation of the banking sector and the attraction of the “King” stock group on the stock market, the door for calling capital of many banks will be brighter than the previous years.
Of course, opportunities do not spread equally among banks. Commodities in the stock market are very plentiful, and investment flows will choose efficiently operating businesses and banks. Conversely, inefficient banks, banks with high bad debt are still difficult to attract investors.
