In the third quarter of this year Techcombank decided to pay stock dividends for 2017 to its shareholders at a ratio of two shares for each share held.
The decision was part of the bank’s plan to increase its charter capital to US$1.2 billion.
To increase its capital, Military Bank maintained a dividend payout rate of almost 11 per cent, of which 6 per cent was paid in cash and the rest in shares.
In the second quarter VPBank decided to issue 925 million shares to pay dividends to its shareholders, increasing its charter capital by $402.434 million.
Analysts said plans to hike the charter capital have been going rather smoothly at both State-owned and private banks in recent times, especially those with good performances like VIB, HDBank, VPBank, Maritime Bank.
HDBank is confident it can soon and on schedule execute the plan to increase its capital to VND11.972 trillion.
Market observers said with their results improving significantly this year, lenders are more actively paying dividends but many choose to pay in shares because they want to meet Basel II standards for capital adequacy as mandated by the State Bank of Vietnam.
The central bank requires all Vietnamese banks to have a capital adequacy ratio of 8 per cent when it adopts Basel II standards by 2020.
Paying dividends in shares leaves both the banks and the shareholders happy, the former because they can increase their charter capital and the latter because bank shares are doing well, experts said.
According to Vietnambiz – an online news channel, 10 out of 16 bank shares listed on the stock market have seen their prices go up this year.
This is unlike previous years.
Last year for instance it caused concern among investors when many banks said they would pay dividends in shares instead of cash.
At its annual general meeting last April Asia Commercial Bank (ACB) shareholders heard the bank would pay a dividend of 10 per cent in shares for both 2016 and 2017. Many disagreed with the decision.
A similar situation was seen at the VPBank shareholders’ meeting on the same day when the bank announced a dividend of 32 per cent in shares for 2017.
Only a few banks plan to pay dividends in cash. Of the 10 percent LienViet Post Bank will pay, 4 per cent will be in cash and 6 per cent in shares.
Analysts say the policy on dividends pursued by banks for many years now, that of paying in shares, has resulted in prolonged arguments with shareholders.
They say banks find it difficult to pay dividends in cash since they are required to make a lot of risk provisioning because of their high bad debts ratios.
….Issuing bonds
In addition to paying stock dividends, many banks have also increased bond issuance, which experts say has the twin benefit of securing funds and adding to tier II capital under Basel norms.
In the fourth quarter of this year the banking sector is expected to issue around 10 trillion US$434.8 million worth of bonds.
Last month the Bank for Investment and Development of Vietnam (BIDV) raised US$174 million.
HDBank plans to issue bonds worth VND500 billion and ACB wants to raise VND2.2 trillion.
Many other lenders including the Vietcombank, VietinBank, MB, and VIB have also raised thousands of billions of VND.
Analysts say the banks are scrambling to issue bonds to also meet businesses’ funding needs during the peak shopping season at the end of the year.
By the end of the third quarter, some lenders have a pressing need to bridge a growing liquidity gap, such as BIDV had lent VND968.7 trillion for the year and mobilized deposits of only VND953.5 trillion, while Vietinbank’s deposits grew at only 9.7 per cent to VND826 trillion but credit grew by 12.8 per cent to VND892 trillion.
Another important reason for issuing bonds is to lay their hands on long-term funds as the central bank squeezes banks on the use of short-term deposits for long- and medium-term loans, reducing the rate from 45 per cent this year to 40 per cent in 2019.
According to the State Bank of Vietnam’s data, the group of State-owned banks now has an average capital adequacy ratio of 9.69 per cent but will go below 8 per cent when BASEL II standards are applied.
Many experts have warned however that while issuing bonds could help the banks meet certain requirements it is an unsafe measure in the long term.
Besides, it poses a risk to the economy as a whole by increasing interest rates.
For instance, the coupon rate on Vietcombank’s six-year term bonds is now 7.4 per cent, while the bank only pays 6.5 per cent for five-year deposits.
The lender has just had to hike its deposit interest rates by 0.1- 0.3 percentage points at different terms, the second adjustment in a month.
Enterprises had not been affected by the interest rate hikes yet but would likely come under pressure next year, Dr Nguyen Tri Thanh, a senior economist, said. Dr Nguyen Tri Hieu – banking expert warned about the great liquidity banks would require when the bonds become due for redemption more or less at the same time.
Then they might have to again raise their deposit interest rates, he said.
In the event, he suggested that the Government should allow banks, particularly the State-owned ones, to partly retain their profits to increase their capital. Basel norms allow retained earnings to be treated as tier I capital.
It is also necessary to create favorable conditions for banks to sell stakes to mobilize new capital.
BIDV for instance expects to issue 603 million new shares to South Korea’s KEB Hana Bank to raise its charter capital to US$1.72 billion.
Vietcombank, Vietnam’s largest listed bank by market value, plans to sell a 10 percent stake to foreign investors.
Experts also advised the lenders to focus on the denominator in the CAR ratio – their risk-weighted assets, or loans – saying they should focus more on fee-based business to reduce the dependence on lending, especially to risky sectors such as real estate.
By Thien Ly, VNS