Increasing capital not only helped the bank better cope with the difficulties caused by the disease but also raised the ability to provide credit to the economy.
At the recent annual general meeting (AGM), many banks submitted to shareholders a plan to raise capital. For example, Vietnam Thuong Tin Commercial Joint Stock Bank (Vietbank) planned to increase its charter capital from 4.19 trillion dong to 4.819 trillion dong. Source to increase charter capital was from retained earnings between 2017 through 2019, with an amount of nearly 629 billion dong (62.87 million shares for existing shareholders). VietBank would issue shares to pay dividends to shareholders to increase charter capital, with an expected rate of 15%. According to the Board of directors of VietBank, the capital increase in 2020 aimed to improve financial capacity, operational capacity, and competitiveness. At the same time, increasing capital was to ensure the satisfaction of the pillars of Basel II, as well as to help the bank to supplement operating capital, expand the business scale.
The case of the Sai Gon Joint Stock Commercial Bank (SCB) was also the same. According to general director Vo Tan Hoang Van, this bank had been approved to apply Circular 41 of the State Bank of Vietnam (SBV). However, in 2020 SCB would continue to increase capital to improve capital adequacy ratio (CAR) as well as other regulations of SBV. Under the plan, SCB would offer 500 million shares to existing shareholders, domestic and foreign investors, with the offering price not lower than 10,000 dong per share and the expected implementation time in 2020 and completion of issuance in 2020-2021. After successful issuance, SCB’s charter capital would increase from 15.232 trillion dong to 20.231 trillion dong. With that proceeding, the bank was expected to spend 4 trillion dong to supplement business capital; the rest was spent on investment in fixing assets and information technology.
For Nam A Commercial Joint Stock Bank (Nam A Bank), although it had just been approved by the SBV to increase its chartered capital from more than 3 trillion dong to 5 trillion dong in 2020, the bank was aiming to list on Hochiminh Stock Exchange (HOSE) and expected to attract more capital from foreign sources to increase capital, consolidate financial resources more firmly.
According to experts, it was necessary for banks, regardless of size, to increase capital at this time. The disease was affecting many business and production activities of businesses, thereby the potential for bad debt increased, reducing the health of banks. Therefore, raising capital could not only help the bank better cope with the difficulties caused by the disease but also increase the ability to provide credit to the economy.
Sharing the same viewpoints, Nguyen Tri Hieu, a finance and banking expert, said that, although the current conditions were not favourable, the increase in capital for banks was irreversible since increasing capital was crucial to the survival of the bank. Equity was a cushion to help the bank absorb the losses when it faced risks. Thus, any bank with substantial equity would steadily overcome the shocks. In contrast, any bank which had thin equity would surely be more affected. That was even more important when the world economy and the whole of Vietnam were walloped by the epidemic.
Another reason for banks to accelerate their capital raising plan was according to Circular 22/2019/TT-NHNN. From October 1, 2021, the maximum rate of short-term funds used for medium and long-term loans would be reduced to 34 percent and would be further reduced to 30 percent after October 1, 2022. If the capital could not be raised, the ability of banks to supply medium and long term capital would inevitably be affected.
Experts said that at this stage, the stock market was growing well, especially bank stocks were continuing to lead the market in raising capital through issuing new shares to investors. However, according to a securities expert, stocks of small banks had not yet received a positive welcome from investors because the business results were still modest, the business strategy had no highlight compared to big banks.
Notably, in the plan to increase the capital of banks, there were plans to call capital from foreign investors. This plan was considered appropriate because the long-term cash flow of domestic investors had been slowing down for many years. Especially at this moment, when big investors were facing difficulties due to epidemic impacts, the ability to mobilise capital from this group of investors was not easy. The reality broadcasted a positive signal after a period of continuous net selling from foreign investors turning to buying net shares. Opportunities were more open when Vietnam joined a big trade agreement, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA). However, in order to attract investors’ interest, in addition to positive profits, banks must meet many rigorous standards like asset quality, transparent financial situation.
Some experts proposed that in the context of many banks attempting to increase foreign capital mobilisation to meet Basel II standards, accelerate restructuring and meet international standards, the government should allow foreign ownership cap expansion at banks from 30 percent to 49%. Because investors always wanted a higher ownership rate to be able to participate more deeply in governance and administration.
