Can Charter Capital Rise Hit Deadline?

The capital rise by Vietnamese commercial joint stock banks to VND1,000 billion as of December 31, 2009 as stipulated by the Decree 141/2006/ND-CP was not fully accomplished the deadline for hiking the compulsory capital to VND3,000 billion is coming nearer. With positive developments like better earnings results in the first half of 2009 and stock market recovery, many banks hope to finish the capital rise before the deadline on December 31, 2009.

 

In 2008, when the stock market slumped and global financial crisis worsened, bank shares lost most of their values but investors still ignored. However, when the stock market revived, investors turned their interest to bank shares and they always pinned high hopes on banks which will be the first sector to recover from the crisis. Bank shares increased their values since March and some even doubled their values in a short period.

 

Reports released by banks showed that their business results were better on improving economy. This, in return, intensified the interest of investors in bank shares. Many investors are queuing to buy shares issued by banks to increase their capital. Several banks have offered prices at par value or above par. This is really a good chance for banks to complete its plans to raise chartered capital.

 

On June 18, 2009, Tien Phong Commercial Joint Stock Bank (TienPhongBank) held its extraordinary shareholder meeting and approved important issues, including capital rise. The newly established lender will increase its chartered capital by VND750 billion in 2009, totalling VND1,750 billion.

 

On June 18, 2009, the governor of the State Bank of Vietnam (SBV) signed the Decision No. 4633/NHNN-CNH and the Director of SBV - Hau Giang branch issued the Decision No. 229/NHNN-HGI2 to approve the 2009 capital raising plan submitted by the Lien Viet Commercial Joint Stock Bank (LienVietBank).

 

Accordingly, the new chartered capital of the lender will be 3,650 billion in 2009, a rise of VND350 billion. This is the first time the bank increased its chartered since its incorporation.

 

According to the capital raising plan approved by the 2009 annual general meeting, from July 15, 2009, the Saigon Commercial Joint Stock Bank (SCB) will increase its chartered capital from VND3,299 billion to VND3,636 through issuing dividend shares and bonus shares from its capital surplus to existing shareholders.

 

Other banks also revealed their plans to raise capital this year. SCB planned to issue convertible bonds to existing shareholders and foreign partners to increase its chartered capital from VND2,047 billion to VND3,374 billion. Vietnam International Commercial Joint Stock Bank (VIB Bank) also approved the plan to scale up its capital from VND2,000 billion to VND3,000 billion.

 

Many banks with their capital doubling or trebling the compulsory rate also planned to hike their capital. Habubank said it will increase its capital from VND2,800 billion to VND3,000 billion in the last half of 2009. DongABank will increase from VND2,880 billion to VND3,400 billion. Sacombank will boost from VND5,115 billion to VND6,700 billion. Big lenders want larger capital because they want to enhance financial capacity and expand operations in accordance with their development roadmaps. Small lenders like DaiABank, KienLongBank, Oceanbank, VietBank, PGBank and GiaĐinhBank which completed their capital rise to the compulsory level of VND1,000 billion in late 2008 also started with new capital raising plans.

Two years ago, it was quite easy for Vietnamese banks to attract foreign capital because international banks and credit institutions saw high prospects. However, global financial crisis sank many foreign banks and credit institutions. Thus, domestic banks keep hesitant in negotiating new deals with foreign partners and they even change the plans to sell stakes to foreign strategic partners.

 

Meanwhile, foreign investors valued a bank based on its risk management, governance, return on equity (ROE), return o asset (ROA), non-performing loan (NPL) and ratio of revenues on fees. In general, not many Vietnamese banks satisfied their requirements. Risk management is a top concern for foreigners as it is usually substandard.

 

Currently, the State Bank of Vietnam is tightening its credit policies for the purpose of controlling inflation and keeping credit growth at below 30 per cent this year. Meanwhile, the credit growth was recorded at 17 per cent in the first six months of the year and the banking system needs to strive to keep the growth at additional 13 per cent in the last six months of the year. The central bank forecast a slower growth of credit when inspections and supervisions in lending at banks are intensified.

 

Remarkably, although banks made profit in the first six months of 2009, their ROE was quite low. For example, Eximbank reported its profit of VND813 billion in the first six months while its chartered capital was VND7,219 billion. Especially, profits of banks mainly come from credit activities and the credit policy is tightened, their earnings will be hurt.

 

Thus, banks will face heavier pressure in increasing capital while they fail to meet requirements of investors.