Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) regularly paid dividends, up to 20 percent a year, but for two years and nearly three years, they have suspended to pay dividends.
At the Annual general Meeting of Shareholders 2019 held in early April this year, BIDV’s shareholders approved the plan to pay dividends for 2018 of six percent in cash, that means shareholders received 600 dong for each share owned.
At the meeting of VietinBank, the Board of directors also submitted to shareholders two options, one was to divide the entire 2018 dividend by stocks at the rate of 8.03 percent and the second was to retain all profits to increase authorised capital.
However, until the present time, when 2019 is about to pass by, both banks have not had any information related to the above dividend payment.
Previously, for the fiscal year 2017, VietinBank was expected to pay a cash dividend of five to seven percent, while this figure at BIDV was expected to be seven percent, in cash. And similar to 2018, dividends in 2017 have been suspended.
Meanwhile, from 2016 and earlier, these two banks regularly paid dividends to shareholders, from seven to ten percent. Even in 2012, VietinBank paid cash dividends of up to 16 percent.
In addition, the bank also had two years of stock dividend payment, in 2009 (6.83 percent) and 2011 (20 percent).
Therefore, the latest dividend payment of these two banks is for fiscal year 2016.
According to Circular 41/2016/ TT-NHNN, by the beginning of 2020, the capital adequacy ratio for banks will start to take effect, with stricter requirements.
Accordingly, the leaders of the two banks have repeatedly asked the management agency, the Ministry of Finance, to allow them not to pay dividends or pay by shares to supplement their own capital, improve their financial capacity, and meet demand for growth, while ensuring compliance with capital adequacy limits prescribed by the State Bank of Vietnam (SBV) and international practices.
Le Duc Tho, Chair of VietinBank, said that by the end of 2018, the bank’s separate minimum capital adequacy ratio (CAR) was 9.6 percent and the consolidated was 10 percent. However, if applied under Circular 41, the bank’s CAR was below eight percent.
Accordingly, the head of VietinBank affirmed that the capital increase was especially urgent for the current bank.
With the ownership of the dominant shares (at BIDV is 95 percent and at VietinBank is 64.46 percent), the State shareholder is the unit in charge of deciding dividend payment at two banks.
And whether paying dividends or not, paying by stock or cash has a direct impact on the “national pocketbook”. Because, each year, these two banks contribute to the state budget thousands of billion dong. Therefore, paying dividends in cash seems to be evident when each congress comes.
Even in 2016, VietinBank and BIDV decided to choose 2015 stock dividend payment plan to raise capital to ensure CAR ratio and this plan was also approved by SBV.
However, shortly thereafter, the Ministry of Finance issued a written request to SBV to direct the representative of the state capital in the two banks to pay dividends in cash and contribute these dividends to the state budget.
And that year, BIDV and VietinBank were forced to pay dividends of 8.5 percent and 7 percent respectively, in cash.
Up to now, 10 banks have applied Circular 41 ahead of schedule, but among them, there is no name of VietinBank or BIDV.
For BIDV, the pressure to raise capital has been partially relieved when the bank prepares to issue 603 million separate shares to its Korean partner.
However, with VietinBank, the door to raise capital became “narrower” when the State ownership ratio at the bank hit the floor while the foreign ownership ratio was also filled.
The issuance of shares to raise capital is almost impossible because the State has no plans to spend more budget for commercial banks.
The pressure on this bank is thus greater when it is forced to rely on short-term solutions, constantly issuing additional tier II bonds at higher costs.
As above, 2019 is about to pass. Development Strategy of Vietnam’s Banking Sector to 2025, Orientation to 2030, the government stated: “By 2020, the State-owned commercial banks with more than 50 percent of charter capital must meet the required capital following Basel II standards.”
With this possibility, it is possible that the dividends in 2017 and 2018 that are “suspended” in the two banks will be paid in shares in the near future? This question has repeatedly seemed to have an answer in 2019, even posed at the regular government press conference. The small shareholders at these two banks have had no specific income from their legitimate interests for a long time.
