In the last two years, state-owned banks often paid dividends in cash at a ratio of seven to eight percent, although they previously proposed to retain profits for raising capital or pay dividends in shares. However, as the deadline to apply new safety ratios is approaching, while the draft circular regulating new safety regulations is increasingly strict. Not only the leaders of banks voiced about the difficulties in capital raising, recently, Dao Anh Tu, deputy Governor of the SBV affirmed that banks need to increase capital in the context when their Capital Adequacy Ratio (CAR) has reached the minimum threshold.
The management agency’s representative thus said that credit institutions (CIs) can use the dividend fund to raise capital.
For state-owned banks, the specific dividend plan depends on the decision of the management agency and therefore it is difficult to predict the time. Meanwhile, the group of private commercial banks (VietinBank) has also recorded major changes, such as the case of VPBank which has recently decided to not distribute dividends. According to Bui Hai Quan, VPBank’s vice Chair of the Board of directors, the bank will temporarily not pay 2018 dividend, both in shares and cash in order to ensure that the bank’s financial capacity complies with the Basel II standards.
Previously, at the 2018 Annual general Meeting (AGM), leader of VPBank was fairly confident by emphasising that if the business results are favourable in 2018, the shares and bonus shares may reach 70%. In fact, VPBank did not achieve the expected profit, although its profit still increased by more than 13%, reaching nearly 9.2 trillion dong.
However, the profit scale is not necessarily the main factor leading to the decision to pay dividends, especially in the case of Vietnam Technological and Commercial Joint Stock Bank (Techcombank). In 2018, the bank broke the record with a total pre-tax profit reaching over 10.6 trillion dong, but no dividends were paid. Techcombank’s representative repeatedly affirmed that retaining profit is a strategy to increase the value of the bank in the long term.
From the perspective of shareholders, the no dividend payment makes them feel disappointed with bank stocks, especially shareholders holding shares for a long term, who suffered a lot when the prices of bank stocks fell compared to the previous period.
In fact, the banks that paid dividends in recent years paid in shares, and shareholders thus were not completely satisfied. At the AGMs in the recent years, shareholders have always asked about dividends. However, there is a fact that banks are having to restructure and the dividend payment issue must be approved by the management authority. For example, Chair of Saigon Thuong Tin Commercial Joint Stock Bank Duong Cong Minh said that restructuring bank is not allowed to pay dividends, but the bank has proposed the management authority for approval of paying dividends and is waiting for the final decision.
The issue of dividend at banks will still be mentioned in many years to come, because it relates to the handling of bad assets at commercial banks. The draft of a new circular on debt trading activities of Vietnam Asset Management Company (VAMC), replacing the 2013 Circular, specifies that CIs are not allowed to pay cash dividends in order to improve financial capacity and to have a basis for settling special bonds.
In the short term this year, dividend issue will still be under much pressure because it has come close to the deadline that banks must carry out new safety indicators. In fact, this year many small banks responded by not paying dividends, such as An Binh Commercial Joint Stock Bank (ABBank), or Kien Long Commercial Joint Stock Bank (KienlongBank). Meanwhile, some small and medium-sized banks still stably pay dividends. For example, Asia Commercial Joint Stock Bank (ACB) this year plans to distribute dividends at 10 percent in cash and 20 percent in shares (it was 14 percent in share last year). Vietnam International Commercial Joint Stock Bank (VIB) approved the plan to pay cash dividends at 5.5%, bonus shares at 18 percent and treasury shares at three percent. Nam A Commercial Joint Stock Bank (NamABank) expects to pay dividends at 16 percent but no specific plan has been revealed.
MB has paid the first-phase 2018 dividends in cash at a ratio of six percent, and eight percent in shares. Last year, MB issued additional shares to pay dividends and bonus shares for shareholders with a total of 19%. This is considered an option to help the bank raise capital, while most others issue additional shares to pay dividends or bonus shares. This ratio is even much higher at many banks such as VIB with over 41%, or VPBank with nearly 62%. Techcombank last year also issued shares and distributed bonus shares for shareholders to increase its capital by threefold.
Speaking at the AGM, Luu Trung Thai, general director of MB said that the issue of dividend payment depends on the annual business strategy. Meanwhile, the pressure on banks in terms of doing business is also becoming clearer as the world economy is constantly changing, while the SBV sets general credit growth at only 14%. The latest updates showed that by April 17th 2019, the credit growth rate was 3.23 percent compared to the beginning of the year, lower than the result of two previous years.
Some banks will be given higher credit growth room, depending on their financial and business capacity, but overall the entire market will be affected.
