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Increasing banks’ capital: step backwards or march forward?
The stock market has shown signs of strong recovery, but does this mean that banks, especially small ones, will find it easier to mobilise capital to increase chartered capital.
Unlike enterprises which operate under the Enterprise Law, which can issue shares at prices below face value, joint-stock banks are not allowed to do that.
According to Decree 141, which stipulates the list of legal capital levels for credit institutions, joint-stock banks must have the legal capital of VND1tril by the end of 2008, which will be raised to VND3tril by the end of 2010. If considering the decree, 10 joint-stock banks will have to increase capital in order to get the VND1tril as stipulated. These include My Xuyen Bank, whose current legal capital is VND500bil, Bac A Bank (VND940bil), Gia Dinh Bank (VND500bil), and Pacific Bank (VND566bil).
One of the 10 banks, Kien Long Bank, has announced a plan to increase chartered capital by issuing 42mil new shares to existing shareholders (40 mil shares, VND10,000/share) and the bank’s staffs (2mil shares, VND10,000/share).
In fact, some analysts have expressed their concern that the plans to issue shares may not succeed. In Q3 2007, Gia Dinh Bank announced it would sell stakes under auction with the starting price at VND40,000/share. However, very few investors registered to join the auction, which was cancelled later.
Meanwhile, the stock market’s most difficult period is over, but bank share prices have just increased slightly. An Binh Bank’s shares, for example, are now trading at VND9-10,000/share, Phuong Nam Bank’s shares VND12-13,000/share, VP Bank VND14-15,000/share. These are the banks that have high growth rates with rapidly developed networks.
When asked about the feasibility of the share issuance plan, Truong Hoang Luong, Deputy Chairman of Kien Long Bank, said that this is within reach of the bank.
Currently, the bank has two big strategic shareholders, Asia Commercial Bank and Saigontourist, each of whom holds 10% of stakes, and is willing to purchase more stakes.
Luong said that some enterprises, banks and individuals have expressed desire to inject money in the bank.
A member of the bank’s supervision board said that Kien Long Bank’s shares are now trading at VND13-14,000/share, which makes him believe that the idea to sell stakes at face value is feasible.
PG Bank’s shareholders’ meeting in May 2008 decided to increase the chartered capital to VND1tril. It seems that very few PG Bank’s shares are now in circulation. The two biggest shareholders of PG Bank are Petrolimex and Saigon Securities Incorporated.
General Director of Petrolimex Bui Ngoc Bao affirmed that the corporation would pour more capital to raise its ownership ratio in PG Bank; therefore, the increase of chartered capital to VND1tril proves to be within reach.
However, analysts have pointed out that it is undeniable that it is not easy to increase capital at this moment, when a lot of difficulties still exist.
In late August 2008, the State Bank of Vietnam released Document No 7910, requesting directors of state bank branches to report on capital increase being carried out by local commercial banks.
VNN
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