Ministry Demanding Cash Dividend from Banks: Ongoing Controversy

The case stemmed from similar decisions of not paying cash dividend made by Vietinbank and BIDV after their 2016 Annual Shareholders Meetings. Currently, the State holds 64.46 per cent of stake at Vietinbank and over 95 per cent of stake at BIDV. BIDV decided to pay 8.5 per cent stock dividend while Vietinbank did not pay any dividend. In previous years, the two banks usually paid 10 per cent or so of cash dividend.

 

On May 31, Deputy Finance Minister Do Hoang Anh Tuan signed and sent an official document on dividend payment policies of BIDV and Vietinbank to SBV Governor Le Minh Hung.

 

The Ministry of Finance showed its determinations to perform the task of ensuring budgetary balance in another tough year but also showed its passiveness with State revenue sources. This year, the State Budget is forecast to experience huge difficulties on rising overspending and narrowing income sources caused by low crude oil prices. No dividend from the two banks will make it harder for the Ministry of Finance to balance the State Budget. With about VND5 trillion of dividend a year as taken in previous years, the ministry will reduce budget balancing pressures this year.

 

The two banks contributed significantly to the State Budget in previous years. Vietinbank paid about VND10 trillion to State coffers from 2011 to 2015 thanks to its annual dividend pay-out ratio of 10-16 per cent. BIDV also contributed significantly to State incomes.

 

This year, the State Budget has not received any pence of dividend from these banks. An official from Vietinbank said his bank had asked the Ministry of Finance for retaining the profit and not paying dividend. He explained that it is essential to boost up the capital capacity of a bank assigned with many economic and political tasks.

Retained profits help banks increase their capital adequacy ratios (CARs), which are usually near to the minimum rate. If cash is used to pay dividend as required by the Ministry of Finance, their CARs will slide to below the statutory rates, especially when they are fulfilling Basel 2 requirements on enhancing the strength and safety of the banking system.

 

At a press meeting on June 2, SBV Deputy Governor Nguyen Thi Hong said that after receiving the request from Ministry of Finance, SBV functional units are “considering and assessing good aspects of transferring dividend in cash to the State Budget and difficulties of the credit institutions” to put forth appropriate policies in line with the credit institution restructuring scheme adopted by the Government and to report this issue to the Government.

 

The rationale is biased towards the Ministry of Finance. Decree 57/2012/ND-CP dated July 20, 2012 on financial regimes for credit institutions and branches of foreign banks stipulated that “For a credit institution being a commercial bank with more than 50 per cent of stake held by the State, the representative of State capital at such bank shall consult with the SBV and agree with the Ministry of Finance on the distribution of remaining profits to vote at its general shareholders meeting.

 

According to the law, joint stock companies and limited liability companies with two members or more must pay their profits and dividends shared corresponding to the State capital ratio in such companies.

 

This is why the Ministry of Finance suggested the central bank to direct State capital representatives at BIDV and Vietinbank to vote for cash dividend payment in the fiscal year of 2015 and pay all dividends shared to the State Budget.

 

In the latest related development, on June 7, the website of the Ministry of Finance ran a piece of information requesting BIDV and Vietinbank to pay cash dividends. The ministry explained that it has conducted its right tasks and functions demanding banks to abide by the law.

 

The ministry cited the National Assembly's Resolution No. 99/2015/QH13 on tasks of balancing the State budgetary revenue in 2016 from remaining profits and dividends shared out by joint stock companies with State stake holdings. Remaining profits of wholly State-owned enterprises after statutory takings for funds according to the law is VND55 trillion. The ministry affirmed that "The law is that very clear but some State-owned commercial banks with over 50 per cent of stake held by the State decided to distribute profits against the law - without consulting the Ministry of Finance.”

 

With the determination of the Ministry of Finance and no signs of surrender from central bank, the case is more likely to be forwarded to the Prime Minister.