Banks Still Obsessed with Restructuring

According to data on operations of credit institutions in the year to the end of February released by the State Bank of Vietnam (SBV), while all forms of credit grew in total assets, State-owned commercial banks saw a combined drop of VND4,278 billion, or 0.13 per cent from the start of the year, to VND3,300 trillion.

 

Eximbank saw a disappointing decline in total assets. By the end of the first quarter of 2016, the lender’s total assets fell to VND123,263 billion from some VND180 trillion earlier.

 

Three zero-value banks, namely OceanBank, GPBank and CBbank, were taken over by State-owned commercial lenders for VND0. Indeed, giant State-run banks had to carry weak banks, resulting in poorer financial indicators than earlier.

 

Perhaps, the forced takeover of valueless banks brought giant banks to the “dividend-zero club”. Shareholders of Vietinbank (CTG) definitely felt disappointed when the lender announced no dividend for the past fiscal year so as to keep its entire profit of VND3,660 billion and supplement its owner’s equity and enhance its financial capacity. A leader from this bank eased shareholders with a stock spilt as an alternative.

 

The Bank for Investment and Development of Vietnam (BIDV - BID) failed to fulfil its promise of paying a dividend rate of no less than 9 per cent in the general meeting in 2015. At the annual general meeting of shareholders in 2016, the bank fixed the stock dividend rate of 8.5 per cent. BIDV President Tran Bac Ha attributed the underestimated dividend payment to the takeover of MHB, which resulted in the lender’s share split for the admitted entity.

 

Some commercial banks which did not pay dividend in previous years continued to keep a no dividend policy, although they are profitable. Notably, the scale of estimated accrued profits of the entire system keeps growing, with a sharp rise from 2012 to present. The value of profit accruals of the system climbed from over VND40 trillion in 2012 to over VND100 trillion in 2013. It declined slightly in 2014 before bouncing back in the following year. By the end of the first quarter of 2016, the scale of accrued profit of 34 banks rose to VND168 trillion, of which VND123 trillion came from credits. Banks with big profits included SCB, Sacombank, BIDV, Agribank, Vietinbank and DongA Bank.

 

Except for Vietcombank which announced to pay a 10 per cent cash dividend to its shareholders and some other lenders with plans to pay both cash and stock dividend like Military Bank (MB), many others decided not to pay dividends or just pay by share split. The annual shareholder meeting season in 2016 elapsed with more sorrow than joy to those who placed their trust in bank shares.

 

Each bank has its own seemingly convincing excuse for not paying dividends. But, the root of this comes from problematic bank operations. While total assets and credit climb, shareholders do not receive a penny from dividends or just symbolic value. In addition to inefficient operations, unsettled bad debts placed at VAMC also became a drag on their operations.

 

The process of settling bad debts cannot be the sole responsibility of banks since it is actually out of control for them.

 

Bad debts appear and become severe in the context of macroeconomic instability in previous years, resulting in a sharp decline in aggregate demand and a strong rise in corporate bankruptcies or discontinued operations caused by excessive investment in real estate market since 2012. This turned out to be a big macroeconomic problem. Efforts to deal with bad debts have to date brought in positive results after the SBV told commercial banks to set aside provisions, sell assets, collect loans and sell debts to VAMC. VAMC has bought nearly VND250 trillion of bad debts from banks in a bid to bring banks’ bad debts to below 3 per cent by the end of 2015. Books of commercial banks were “cleansed” although their bad debts had not been settled, but they were brought out of the books and put at VAMC.