VP Bank has obtained approval from the State Bank of Viet Nam to scale up its charter capital to VND6.347 trillion ($300 million) from VND5.77 trillion ($273.46 million).—Photo zing

HA NOI (Biz Hub) — While some small commercial banks failed to raise their charter capital last year, some major lenders have already approved adding millions of US dollars to their charter capital this year.

This is viewed as a positive sign amidst the current economic turmoil, but it is also a warning of increases in dividend payment sums.

Sacombank plans to hike its charter capital by VND1 trillion (US$47.4 million) to VND14.382 trillion ($681.6 million) by the end of 2014. The SCB is targeting the addition of VND2 trillion to make up its charter capital of VND14.295 trillion ($677.49 million).

VP Bank has obtained approval from the State Bank of Viet Nam to scale up its charter capital to VND6.347 trillion ($300 million) from VND5.77 trillion ($273.46 million).

Oceanbank will raise its charter capital to VND5.3 trillion ($251.2 million) by the year-end from VND4 trillion ($189.57 million).

These plans will be implemented by issuing shares to existing shareholders and offering shares on the stock market.

BIDV's deputy general director Can Van Luc told Viet Nam Economic Times newspaper that opportunities for success still arose on the stock market because the capitalisation of bank shares constituted a large part of the market's activity.

Industry experts assume that the ongoing attempts to reform the banking system are gradually improving business at credit institutions and restoring public confidence by making it easier to request capital.

However, the head of an HCM City-based bank, which failed to raise its capital last year, pointed out that making the accompanying dividend payment would prove to be more challenging later on.

In a bid to bolster the ailing banking system and liberalise the industry, Viet Nam in February lifted the level of strategic foreign ownership from 15 per cent to 20 per cent, while maintaining total foreign ownership at 30 per cent for local banks.

In fact, amidst growing distress and the pressure of restructurings, banks performing poorly are in critical need of extra capital, which is difficult to gain from local sources.

Small banks step up

Small and medium scale banks have showed determination to raise their charter capitals within this year after failing to achieve the goal last year.

The charter capital increase was considered essential for small and medium-sized banks to enhance their financial capacity and competitiveness amid soaring competition and the hastened restructuring progress of the entire banking system.

The minimum legal capital of a credit institution was regulated at VND3 trillion (US$142.8 million), and several banks in the country now had charter capitals at the minimum level or just slightly higher.

Nam A Bank planned to increase its charter capital from its current value of VND3 trillion ($142.8 million) to VND4 trillion ($190 million), with the objective of expanding its network along with the development of the entire banking system.

Accordingly, 100 million shares will be sold to the public, which is scheduled to be implemented in the third quarter of this year, at the price of VND10,000 ($0.47) per share.

Viet A Bank, which currently has a charter capital of VND3 trillion ($142.8 million), is allegedly seeking a nod from the regulators to increase its capital by VND500 billion ($23.8 million).

Last month, Bac A Bank increased its charter capital from VND3 trillion ($142.8 million) to VND3.7 trillion ($176.2 million).

According to Nguyen Van Dung, the deputy director of the central bank's HCM City branch, the capital increases of small and medium-sized banks were necessary to improve their financial capacity.

However, the process needs to be put under careful consideration, given the decline witnessed in the prices of banking stocks last year, he was quoted by Dau Tu Chung Khoan newspaper.

In addition, the efficient use of the increased capitals was also a cause of concern along with rising pressure from the stakeholders about dividends, he pointed out.

While several banks planned to use their increased capital for network expansion, the central bank last year raised the standards for network expansion.

As per the regulations, banks keen on expanding their network must meet the requirements of the bad debt ratio at below 3 per cent and set the required capital for setting up a branch in Ha Noi and HCM City at VND300 billion (US$14.2 million) and VND50 billion (US$2.3 million) for a branch in other locations. In addition, a bank was allowed to open a maximum of 10 branches in the inner cities of Ha Noi and HCM City. — VNS