VNDirect Securities Corporation (VNDirect) had just released a report on the banking industry, which stated that paying dividends in cash and buying treasury shares of banks would be difficult to carry out in 2020 due to Covid-19.
Facing Covid-19 epidemic, the Vietnamese government implemented a series of measures with the overall goal of supporting the economy. Recently, the State Bank of Vietnam (SBV) had asked banks to reduce costs, bonuses and not to pay cash dividends. These requirements aimed to increase retained earnings to ensure liquidity and capital adequacy, at the same time, create conditions for banks to reduce lending rates.
With that goal, VNDirect thought that treasury stock repurchase transactions would be difficult to be approved by SBV at this time. Cash dividend cut and restrictions on treasury stock buying were another reason that bank stocks with good fundamentals became more attractive than other stocks in the industry.
Although VNDirect expected banks would not pay cash dividends in 2020, according to the base scenario that the disease would end in mid-2020, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Military Commercial Joint Stock Bank (MBBank) might pay cash dividends in 2021. Vietcombank was directly owned by the SBV and MBBank was indirectly owned by the state through Viettel Group. Therefore, cash dividends from these two banks were an important source of revenue for the state budget, especially after the budget had been used to treat the disease. For Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), and Asia Commercial Joint Stock Bank (ACB), the analysis team forecasted these banks would not pay cash dividends in 2021 because they had more autonomy about the distribution of profits.
In fact, the cash dividend payment had not been mentioned by any bank, but some banks were planning to buy back treasury stocks to support transactions and increase shareholder value.
For example, recently, VPBank consulted shareholders in writing about the approval of the plan to repurchase treasury shares up to five percent of outstanding shares, equivalent to nearly 122 million VPB shares. The purpose of repurchasing stocks as treasury stocks was to reduce the number of outstanding shares, support transactions, increase shareholder value.
Previously, Tien Phong Commercial Joint Stock Bank (TPBank) also purchased 10 million shares as treasury shares, traded from March 20 to March 26. The highest buying price was 22,700 dong per share, and the lowest was 21,300 dong per share. The total amount of money TPBank spent to buy treasury shares was at about 220 billion dong.
