According to Directive 02 of the State Bank of Vietnam (SBV), banks would not pay dividends by cash. That meant banks would not pay dividends or pay immediately by stock.
Dividend distribution, thorny stories at the general meeting of shareholders
In fact, from the perspective of obligations to shareholders, the SBV’s Directive 02 recently was a relief for bank leaders. The pressure to handle bad debts in the previous period, and the requirement to increase the charter capital and equity, made banks in recent years mainly pay shareholders’ profit by shares. There was even a bank that did not divide profit because even if not dividing, the gain would still be there.
That made many shareholders frustrated because they had to wait for the stock increase to actualise the profit of their investment. Still, if the price did not increase, these investments would become saving because of low financial efficiency, which was even worse than saving accounts at banks.
In 2019 general Meeting of Shareholders of a joint-stock bank, while discussing, although the Bank’s leaders explained based on Circular 08/2016/TT-NHNN stipulating ‘Credit institutions were approved by SBV upon the extension of the special bonds’ term not to receive dividends to create sources to handle bad debts until the special bonds had been extended to be paid’, the shareholders were still upset because of not being paid the dividends. Chairing the meeting, this bank’s leader was forced to ease the situation in a way that he was also shareholders and was very impatient, too, he hoped shareholders would understand.
Even at the 2019 congress season, another joint-stock bank was in a better situation, when the stock dividend plan was still strongly questioned by shareholders. Leaders of this bank again had to lead a series of requests for raising the charter capital to meet the capital adequacy ratio (CAR) under Basel II regulations to answer.
The dividend issue was hot among the banks with dominant state ownership. The leadership of any bank wanted to retain profits by the plan to share dividends to increase capital. However, there were differences between ministries and sectors regarding this solution.
In 2016, the Ministry of Finance even submitted a written request to the Governor to direct capital representatives at Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) to share dividends in cash to pay the state budget.
Up to February of this year, many shareholders had looked forward to high profits in both stocks and cash because 2019 was a very good year for banks. In particular, Saigon Hanoi Commercial Joint Stock Bank (SHB) was approved by SBV to pay dividends in 2017 and 2018 to shareholders at the rate of 20.9 percent in shares from retained earnings as of December 31, 2018. Some big banks also paid up to 30 percent dividend such as Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), Asia Commercial Joint Stock Bank (ACB), HCM City Development Joint Stock Commercial Bank (HDBank).
However, the Covid-19 pandemic had dissolved the untold good news of the shareholders. At the end of March, SBV issued Directive No. 02 on urgent solutions of the banking industry to strengthen prevention, control and overcome difficulties caused by the impact of Covid-19 epidemic.
Notably, at the Directive, SBV stressed that in the immediate future, cash dividends should not be distributed to focus resources on sharply reducing lending interest rates for current loans and new loans.
In the eyes of financial experts and banks’ leaders, the above requirement was quite reasonable because the pandemic would certainly affect the bank’s profits in 2020, especially when banks reduced interest rates and restructured debt. But that meant bank shareholders had one more year to wander about the dividend story.
According to the leader of a joint-stock bank based in Hochiminh City, with the business situation affected by the current epidemic, the bank’s management did not even consider paying dividends, planned to retain all profits in 2019. Even Employee Stock Ownership Plan (ESOP) shares encouraging employees that the manager promised to pay at the end of last year in the 2019 operation summary would also be cancelled, the leader said.
