A report on State ownership in enterprises, issued recently by the Politburo, said the State would continue holding capital in Agribank, BIDV, VietinBank, and Vietcombank, with a controlling stake of no less than 65 per cent.
The report added that this is an important factor in strengthening their potential and plays a dominant role in regulating the operations of State-owned commercial banks.
As the flagship banks in the government’s mission for all Vietnamese banks to meet Basel II standards, BIDV, VietinBank, Vietcombank, and Agribank are exempted from paying cash dividends so they may increase their tier 1 capital.
According to a report from the Ho Chi Minh Securities Corporation (HSC), the Politburo approval will have a significant impact on State-owned banks’ plans to raise their charter capital.
VietinBank, where the State currently holds less than 65 per cent, will not be able to mobilize capital from foreign investors unless the State also contributes more capital, the HSC report noted.
Given its challenges in raising its charter capital in the short and mid-terms, “one immediate option for VietinBank is to raise its tier 2 capital and improve its tier 1 capital via a stock dividend payout,” HSC wrote in its report.
With the State still holding 95.28 per cent and 77.1 of BIDV and Vietcombank, respectively, “the two banks still have lots of flexibility to mobilize capital from foreign investors if the selling price of their stake receives government approval (which also means that it must not be no less than the market price),” the HSC report added.
The State currently holds stakes in Agribank, BIDV, VietinBank, Vietcombank, Construction Bank, Ocean Bank, and GP Bank.
State-owned banks have not been allowed to keep their dividends. Representatives of State capital at State-owned banks are often required to vote on dividend payouts in cash at the banks’ annual general meetings (AGM) so that the State receives money from dividends.
During the 2017 AGM season, Vietcombank, VietinBank, and BIDV secured approval for dividend payments of 7-8 per cent in cash, in keeping with the demand of major shareholders, including the Ministry of Finance.
However, such a situation will be improved.
State Bank of Vietnam (SBV) Governor Le Minh Hung was quoted by Thoi bao Ngan hang (Banking Times) as saying that State-owned commercial joint stock banks will be allowed to keep dividends that are supposed to be paid to the State budget so that they can increase their charter capital.
Mr. Hung quoted the Politburo as saying that the decision is aimed at improving the financial capacity of State-owned banks,
In other words, the Politburo’s approval will help banks increase their capital to meet the requirements of the Basel II standards, which are due to take effect in Vietnam in September as part of a pilot program at ten banks. The remaining banks will follow suit two years later.
To meet the Basel II standards, banks have been trying to increase their capital but have hit many obstacles. Sixteen banks announced plans this year to increase their capital by a total of around VND37 trillion ($1.63 billion).