Banks rush to increase charter capital
Banks have rushed to increase charter capital at the end of the year in order to meet the capital adequacy requirements of Basel II and then Basel III, helping them increase their medium and long-term capital.
Hanoi (VNA) - Banks have rushed to increase charter capital at the end of the year in order to meet the capital adequacy requirements of Basel II and then Basel III, helping them increase their medium and long-term capital.
2021 witnessed a series of "waves" of capital increases by banks. Many banks planned to issue shares as dividends to investors, offer shares to shareholders or find strategic partners.
Over 2 billion shares pumped into the market
In 2021, the stock market also saw strong growth in banking stocks. Seen as the "lifeblood" of the economy, banks proved their performance efficiency as profits grew despite concerns about the impact of COVID-19.
The uptrend of bank stocks started at the end of January 2021 and lasted until the middle of the year. At the peak, in mid-June, VPB and SHB doubled compared to the beginning of the year, while notable stocks such as MBB, TCB, ACB, STB, and HDB also gained strongly. For the whole year, the market price of this group increased by over 30%.
However, after fulfilling their role of leading the market in the first half of the year, the banks gave up the "stage" to other groups. Since the peak in mid-June, most bank shares went flat or fell.
Even so, banks are still busy with the plans of issuing shares to pay dividends to investors, offering shares to shareholders or finding strategic partner banks.
According to statistics, since the beginning of the year, more than 20 banks have continuously increased capital in many forms after obtaining the State Bank of Vietnam (SBV)’s official approval, including State-owned banks like Vietcombank, VietinBank and BIDV, as well as private banks such as VPBank, TPBank, SHB, and OCB
At the beginning of 2021, BIDV was the market leader in terms of charter capital with more than 40.22 trillion VND, followed by VietinBank, Vietcombank, and Techcombank. VPBank was in 6th position. However, at present, BIDV has dropped to third place, while VietinBank and VPBank rose to first and second with chartered capital of 48 trillion VND and 44.45 trillion VND respectively.
However, this order will change in early 2022 after the SBV decides to allow BIDV to increase its charter capital by paying stock dividends to shareholders. If the plan is successful, BIDV’s charter capital will increase to 50.58 trillion VND.
Vietcombank also planned to pay cash dividends at a rate of 12% and stock dividends at 27.6%, raising its charter capital to over 47.3 trillion VND.
Among private joint-stock banks, VPBank is the only bank to announce a plan to increase charter capital in 2022, aiming to raise its charter capital to VND75 trillion.
In addition, several banks also increased capital such as SHB (40%), Sacombank (up by nearly 32%), VIB (up 44.2%), SCB (up 32.8%), and OCB (up 31.8%).
Capital increase pressure
Explaining why banks rushed to increase capital at the year-end, a banking expert said that the main reason was that banks must meet capital adequacy requirements in accordance with Basel II and then Basel III.
At the request of the SBV, by January 1, 2023, banks must ensure the capital adequacy ratio (CAR) at 8% according to Basel II standards as prescribed in Circular 41/2016/ TT-NHNN.
So far, 16 out of 35 banks have met the capital adequacy ratio in line with Circular 41. Even for those that have met Basel II standards, the pressure to increase capital still remains when the banks’ operations expand.
Because Vietnam's CAR calculation method is different from Basel II, when applying a new standard with all three pillars according to international practices, the CAR will decrease by about 15-20% or even 25-30% in some banks if they hide bad debts and fail to strictly comply with provisions on provisioning.
Banks would then be able to raise capital and will face merger and acquisition pressure because of increasingly fierce competition in the market.
Banking expert Nguyen Tri Hieu said due to limited capital, the impacts of the COVID-19 pandemic and the function of supporting businesses and the economy to recover, the group of Big 3 lagged behind groups of joint-stock banks in capital raising. From this year, banks are forced to reduce lending interest rates while bad debts tend to increase. This can be prolonged and affect the banks’ profits.
Therefore, Hieu believed that increasing charter capital will be the driving force for this group to regain its market share in the future. In addition, capital raising also contributes to strengthening financial capacity, helping banks to increase medium- and long-term capital to expand business activities when the use of short-term capital for medium-long-term loans is tightened according to Circular 08/2020/TT-NHNN by the central bank.
It is forecast that banks’ race to increase capital will not stop but take place strongly in 2022./.
2021 witnessed a series of "waves" of capital increases by banks. Many banks planned to issue shares as dividends to investors, offer shares to shareholders or find strategic partners.
Over 2 billion shares pumped into the market
In 2021, the stock market also saw strong growth in banking stocks. Seen as the "lifeblood" of the economy, banks proved their performance efficiency as profits grew despite concerns about the impact of COVID-19.
The uptrend of bank stocks started at the end of January 2021 and lasted until the middle of the year. At the peak, in mid-June, VPB and SHB doubled compared to the beginning of the year, while notable stocks such as MBB, TCB, ACB, STB, and HDB also gained strongly. For the whole year, the market price of this group increased by over 30%.
However, after fulfilling their role of leading the market in the first half of the year, the banks gave up the "stage" to other groups. Since the peak in mid-June, most bank shares went flat or fell.
Even so, banks are still busy with the plans of issuing shares to pay dividends to investors, offering shares to shareholders or finding strategic partner banks.
According to statistics, since the beginning of the year, more than 20 banks have continuously increased capital in many forms after obtaining the State Bank of Vietnam (SBV)’s official approval, including State-owned banks like Vietcombank, VietinBank and BIDV, as well as private banks such as VPBank, TPBank, SHB, and OCB
At the beginning of 2021, BIDV was the market leader in terms of charter capital with more than 40.22 trillion VND, followed by VietinBank, Vietcombank, and Techcombank. VPBank was in 6th position. However, at present, BIDV has dropped to third place, while VietinBank and VPBank rose to first and second with chartered capital of 48 trillion VND and 44.45 trillion VND respectively.
However, this order will change in early 2022 after the SBV decides to allow BIDV to increase its charter capital by paying stock dividends to shareholders. If the plan is successful, BIDV’s charter capital will increase to 50.58 trillion VND.
Vietcombank also planned to pay cash dividends at a rate of 12% and stock dividends at 27.6%, raising its charter capital to over 47.3 trillion VND.
Among private joint-stock banks, VPBank is the only bank to announce a plan to increase charter capital in 2022, aiming to raise its charter capital to VND75 trillion.
In addition, several banks also increased capital such as SHB (40%), Sacombank (up by nearly 32%), VIB (up 44.2%), SCB (up 32.8%), and OCB (up 31.8%).
Capital increase pressure
Explaining why banks rushed to increase capital at the year-end, a banking expert said that the main reason was that banks must meet capital adequacy requirements in accordance with Basel II and then Basel III.
At the request of the SBV, by January 1, 2023, banks must ensure the capital adequacy ratio (CAR) at 8% according to Basel II standards as prescribed in Circular 41/2016/ TT-NHNN.
So far, 16 out of 35 banks have met the capital adequacy ratio in line with Circular 41. Even for those that have met Basel II standards, the pressure to increase capital still remains when the banks’ operations expand.
Because Vietnam's CAR calculation method is different from Basel II, when applying a new standard with all three pillars according to international practices, the CAR will decrease by about 15-20% or even 25-30% in some banks if they hide bad debts and fail to strictly comply with provisions on provisioning.
Banks would then be able to raise capital and will face merger and acquisition pressure because of increasingly fierce competition in the market.
Banking expert Nguyen Tri Hieu said due to limited capital, the impacts of the COVID-19 pandemic and the function of supporting businesses and the economy to recover, the group of Big 3 lagged behind groups of joint-stock banks in capital raising. From this year, banks are forced to reduce lending interest rates while bad debts tend to increase. This can be prolonged and affect the banks’ profits.
Therefore, Hieu believed that increasing charter capital will be the driving force for this group to regain its market share in the future. In addition, capital raising also contributes to strengthening financial capacity, helping banks to increase medium- and long-term capital to expand business activities when the use of short-term capital for medium-long-term loans is tightened according to Circular 08/2020/TT-NHNN by the central bank.
It is forecast that banks’ race to increase capital will not stop but take place strongly in 2022./.