Capital Increase - A New Tendency of Commercial Banks

The Oriental Commercial Joint stock Bank (OCB) decided to increase its charter capital from VND 300 billion to 630 billion, or a nine fold increase against that of ten years ago. This was one of many Vietnamese commercial banks to announce their charter capital increase. Perhaps, the pressure on capital increase for competition has become an unavoidable tendency of Vietnamese commercial banks.

 

One year ago, few joint stock banks had their charter capital reaching VND 500 billion. However, at present, many banks have increased their charter bank to around VND 1,000 billion. According to figures from the State Bank of Vietnam, total charter capital has reached over VND 5,000 billion, up 32 per cent against last year. Some banks have even doubled their charter capital. The Saigon Commercial Joint stock Bank (Sacombank), for example, has added their charter capital by around VND 1,900 billion. Other banks have increased their charter capital by between VND 700 billion and 900 billion. The Hanoi Building Commercial Joint stock Bank (Habubank), for example, has increased its capital by VND 900 billion, the Vietnam International Bank (VIB Bank), VND 711 billion.

 

According to experts, the capital increase tendency will continue as many joint stock banks have planned to increase their capital. The East Asia Joint stock Bank (EAB) will add VND 1,000 billion in 2006. In particular, the biggest commercial joint stock bank, the Asia Commercial Bank (ACB) has recently submitted the State Bank of Vietnam a plan to issue bonds to increase their capital. If the plan is approved, it is possible that in quarter three of 2006, ACB will issue bonds, valued at VND 3,000 billion.

 

With a total asset of VND 31,000 billion, and pre-tax profits of five months of 2006 reaching VND 230 billion, which is expected to reach VND 650 billion, ACB’s stocks have become very attractive in the market. At present, stocks of ACB are traded at price of VND 16 million per stock, or 16 fold higher than its face value. It is unclear how the stock price will increase if ACB’s bond issuing plan is approved.

 

In fact, whenever a bank increases capital, the price of its stock will increase. The price of stocks of VP Bank increased from six fold to 7.7 folds against their face value when the bank increased its capital by 60 per cent. The increase was put at eight folds for Habubank. Even though prices of the stock market experienced ups and downs, stocks of commercial banks attract much attention from investors.

 

That may be a reason for shareholders of many banks to propose capital increase. Nguyen Duc Vinh, general director of the Vietnam Technical Commercial Bank (Techcombank), said that with great attractiveness of stocks, it would not be difficult for banks to mobilise capital. However, the expansion of scale should go with the quality of human resources, as banks should maintain their capability in serving clients and high dividends. Bui Thi Mai, general director of Habubank, said that the bank had prepared for a long time a plan to use capital to be mobilise to increase the effectiveness and bring higher profits to shareholders.

 

However, with its main function of mobilising capital and providing loans, banks are trying to trouble each other. This is because, in fact, people’s deposits have not increased much. With a significant increase in the number of branches and offices in all provinces and cities, the effectiveness of banks’ operation will certainly not be high.