Small banks fight against takeovers

Many small banks want to increase their capital but have failed to do so, according to independent market watchdogs.

As many as 12 domestic banks planned to increase their prescribed capital this year, according to Biz-Live's statistics. If the plans are successful, the total legal capital of major banks would likely rise to 244.975 trillion VND (10.89 billion USD), up 16.3 per cent compared with the late 2014 figure.

Analysts said that almost commercial banks want to raise their chartered capital. Small banks want to become stronger to avoid a hostile takeover by the "big guys", and big banks want to have more capital to improve their competitiveness.

Analysts, however, said that increasing the banks' chartered capital is not easy as many of the banks are small lenders.

Saigonbank, Nam A Bank and VietA Bank, for example, have been unable to raise their chartered capital for several consecutive years.

A source from Dau Tu (Vietnam Investment Review) said that Nam A Bank had decided to raise its chartered capital from 3 trillion VND (133.7 million USD) to 3.7 trillion VND (nearly 164.9 million USD) at its annual shareholders' general meeting in 2012, and then to 4 trillion VND (178.23 million USD) early this year.

The capital would be raised through issuing more shares to existing shareholders and strategic partners at home and abroad. However, the bank has not carried out the plan.

The bank has asked the State Securities Commission to extend the deadline for issuing shares.

A similar situation can be seen at Saigonbank. The lender's self-restructuring plan was approved by the State Bank of Vietnam in 2013.

The bank has implemented most of its restructuring plan but was incapable of fulfilling its plan to raise chartered capital from 3 trillion VND to 4 trillion VND (from 133.33 million USD to 177.78 million USD) in 2014 as planned.

Experts attributed the banks' failure to raise capital to several reasons. The price of newly issued shares, for example, was higher than the rate of shares traded on the market.

Nam A Bank's current shares traded on the over-the-counter (OTC) market are about 7,000 VND (0.31 USD) each, while its newly issued shares are 10,000 USD (0.44 USD) each.

Because of this difference, the bank could raise only 21.1 billion USD (937,780 USD) after issuing 2.11 million shares to existing shareholders.

The domestic stock market is also to blame as small lenders' shares are not attractive to investors.

Nam A Bank's shares have not been attractive to investors, even though the bank has had positive business results since carrying out its self-restructuring plan, with pre-tax profits of 188 billion VND (8.36 million USD) in the first two quarters of this year, a year-on-year increase of 96 per cent.

Tran Du Lich, a member of the National Monetary and Financial Policy Advisory Council, said the central bank was hastening the banking sector's restructuring process with one of the main goals to reduce the total number of banks in the country to 20 or 25.

This move has quickened merger & acquisition (M&A) activities in the banking sector. If weak banks did not improve their financial capacity, they would face M&A deals, Lich said.-VNA