VNStockNews.com - As the deadline for all banks to spur their chartered capital to at least VND3 trillion is drawing closer, many lenders find themselves in hot water at a time investors no longer have appetite for their shares.
Under an earlier announcement, the State Bank of Vietnam regulated that all banks had to meet the capital requirement by December this year. Banks have about a month left to submit their plans on recapitalization to the central bank.
Nearly half of the total 42 local State-owned and joint-stock banks have paid-in capital of less than the regulatory level, and in HCMC, up to nine out of 16 banks still do not meet the capital requirement.
Most of these lenders have chosen the same path of issuing shares or selling stakes to strategic foreign and local investors. An official of the central bank’s HCMC branch says these banks have had their recapitalization plans approved at general shareholders meetings, and some have submitted such plans to the HCMC branch.
Gia Dinh Commercial Bank, with chartered capital of VND1 trillion, expects to double its capital to VND2 trillion by August and VND3 trillion by November. In the first phase the bank will issue 3.6 million bonus shares and sell 94.6 million shares to existing shareholders, while in the second phase it will sell 100 million shares.
Similarly, South Asia Commercial Bank plans to raise capital from the current VND1.2 trillion to VND2 trillion this quarter and to VND3 trillion in the second half of the year by issuing shares to existing shareholders.
A leader of a joint stock bank currently capitalized at VND1 trillion is confident that his bank can realize the plan if it sells shares at the par value.
“The issuance will surely be successful if we sell shares to existing shareholders at the par value because when the bank lists on the stock exchange the price will increase,” he explains to the Daily.
However, some observers say it is not easy to sell shares now as bank stocks no longer attract investors.
They say bank stocks are no longer considered as attractive stocks which investors chased in 2007-2008. Bank stocks on official exchanges and on the OTC market have moved flat or even fallen during the current increasing stage of penny stocks, although those banks have boasted good fundamentals.
Fiachra Mac Cana, managing director of Hochiminh City Securities Co. (HSC), says the banking sector is beginning to consolidate and the challenge for these banks is to continue to expand their capital to avoid falling further behind. Until they can prove they can do so, the smaller banks are a risky investment for most people, he says.
Hoang Thi Hoa, head of the analysis department of Viet Capital Securities Co., warns that investors should look at profit growth of lenders as well as dividends before making investment decisions.
However, while banks’ profit growth is high, returns on equity ratios are low. Returns at Gia Dinh Commercial Bank averaged 5.13% last year, well below the 17%-18% of listed banks.
Small banks can now pledge dividends of 12% at most and some paid as little as 6%-7% last year. In addition, some banks are traded on the OTC market at a price lower than par value. It is not easy for small banks to convince investors to put more in, even at the face value.
Finding long-term strategic foreign investors has not been easy either.
Hoang Van Toan, chairman of Trust Bank, says finding a well-financed partner is not a problem, but finding one who also shares the same view for the bank’s development is really difficult.
Hoa from Viet Capital Securities Co. says foreign banks now have more than one option to enter Vietnam, so buying a stake in local banks may not be the their preference.
“Vietnam now has a legal frame for foreign banks to open a bank in the country, so penetrating the local banking market by buying stakes of a local bank is not the only way for foreign banks keen on Vietnam,” she asserts.
Another tumbling block for local banks wanting to spur capital is that their plans must be approved by the central bank. Upon receiving the preliminary reports from banks, the State Bank of Vietnam by July will approve or reject the capital increase plans. Banks without the approval will be dissolved or merged.
Commenting on the central bank’s policy to order banks to spur capital, Mac Cana says that it will be more healthy for the economy.
“Consolidation of the banking industry is a great step forward as it will reduce the systemic risk in the sector and allow Vietnam to develop five to ten strong and large banks that can compete with global banks. It will also hopefully end the sometimes desperate competition to mobilize deposits that have resulted in deposit rate wars in the recent past,” he says.
