BIDV maps out plan to transfer 15 per cent stake to Korean strategic investor

The private placement of a 15-per cent stake for the strategic investor KEB Hana Bank will help the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) increase its charter capital up to VND40,220 billion ($1.72 billion) from VND34,187 billion ($1.46 billion). 

After the issuance, the State Bank of Vietnam's shareholding in BIDV will drop from 95.2 per cent to 81 per cent.

Among the state-owned commercial banks, BIDV is under great pressure to raise capital to meet Basel II standards. 

The deal is estimated at around $800 million and will likely be finalized between the end of 2018 and early 2019.

However, while awaiting completion of the private placement, BIDV is under pressure on raising capital to achieve the credit growth target of 14 per cent a year this year after only reaching 11.75 per cent from the begin of the year.

BIDV's nine-month business results showed that the bank's loan to deposit ratio (LDR) was at a very high level of 101.6 per cent, increasing sharply from 96.3 per cent in this June.

Early last month, BIDV offered VND4 trillion of bonds for sales to supplement its lending scale in 2018 for medium-and long-term projects. The $800 deal is expected to ease the bank's pressure on capital mobilization.

This will have great significance amid the deposit interest rates are rising, leading to a drop in the bank’s profit margin.

Recently, many banks have increased deposit interest rates from 0.2 per cent to 0.5 per cent, especially for medium-and-long term deposits. Meanwhile, banks cannot raise lending interest rates to fully offset the rise in deposit interest rates. Especially, banks that must restrict consumer, real estate and margin lending.

In addition to issues related to the capital source, BIDV's management of non-performing loans was under unfavorable condition. The significant increase in non-performing loans, interest and accumulated receivables in the first nine months of this year indicated that asset quality may be degrading.

Non-performing loan rate at the end of the third quarter was 1.76 per cent, up from 1.61 per cent at the end of 2017, meaning that BIDV's absolute non-performing loan increased by VND3 trillion in the first nine months of this year. Meanwhile, the total value of interest and fees receivable increased 25 per cent in the last nine months to nearly VND11.9 trillion ($501 million).

The bank is currently setting up VND13,484 billion ($579 million) for risk provisioning, almost threefold increase over the first nine months of last year. The bank also wrote off about VND10 trillion ($429 million) in the first nine months of this year.

BIDV holds nearly VND18 trillion of special bonds issued by VAMC with an estimated cumulative provisioning cost of VND10.5 trillion ($451 million).

Financial figures show that BIDV wrote off over $429 million of non-performing loans in the first nine months of this year, a fourfold increase over the same period last year.