Small banks fight against take-overs

Monday, Aug 24, 2015 08:00

Nam A Bank's current shares traded on the Over-the-Counter (OTC) market are about VND7,000 ($0.31) each, while its newly issued shares are VND10,000 ($0.44) each. — Photo tinnhanhchungkhoan

HCM CITY (Biz Hub) — Many small banks want to increase their capital but have failed to do so, according to independ-ent market watch-dogs.

As many as 12 domestic banks planned to increase their prescribed capital this year, according to BizLive's statistics. If the plans are successful, the total legal capital of major banks would likely rise to VND244.975 trillion (US$10.89 billion), up 16.3 per cent compared with the figure in late 2014.

Analysts said that most commercial banks wanted to raise their chartered capital. Small banks want to become stronger to avoid a hostile takeover by the "big guys", and big banks want to have more capital to improve their competitiveness.

Analysts, however, said that increasing the banks' chartered capital was not easy as many of the banks were small lenders.

Saigonbank, Nam A Bank and VietA Bank, for example, have been unable to raise their chartered capital for several consecutive years.

A source from Dau Tu (Vietnam Investment Review) said that Nam A Bank had decided to raise its chartered capital from VND3trillion ($133.7 million) to VND3.7 trillion (nearly $164.9 million) at its annual shareholders' general meeting in 2012, and then to VND4 trillion ($178.23 million) early this year.

The capital would be raised through issuing more shares to existing shareholders and strategic partners at home and abroad. However, the bank has not carried out the plan.

The bank has asked the State Securities Commission to extend the deadline for issuing shares.

A similar situation can be seen at Saigonbank. The lender's self-restructuring plan was approved by the State Bank of Viet Nam in 2013.

The bank has implemented most of its restructuring plan but was incapable of fulfilling its plan to raise chartered capital from VND3 trillion to VND4 trillion (from $133.33 million to $177.78 million) in 2014 as planned.

Experts attributed the banks' failure to raise capital to several reasons. The price of newly issued shares, for example, was higher than the rate of shares traded on the market.

Nam A Bank's current shares traded on the Over-the-Counter (OTC) market are about VND7,000 ($0.31) each, while its newly issued shares are VND10,000 ($0.44) each.

Because of this difference, the bank could raise only VND21.1 billion ($937,780) after issuing 2.11 million shares to existing shareholders.

The domestic stock market is also to blame as small lenders' shares are not attractive to investors.

Nam A Bank's shares have not been attractive to investors, even though the bank has had positive business results since carrying out its self-restructuring plan, with pre-tax profits of VND188 billion ($8.36 million) in the first two quarters of this year, a year-on-year increase of 96 per cent.

For VietA Bank, the lender has targeted raising its chartered capital from VND3 trillion to VND4 trillion for several years. However, the plan has been delayed.

According to VietA Bank's Executive Board, because of difficulties in the local securities market, the bank has decided to raise capital in two phases.

In the first phase, the bank would raise chartered capital by VND402 billion ($17.87 million) to VND3.5 trillion ($155.56 million) in the second quarter of this year. This plan has been approved by the SSC, but it has not yet been carried out.

Tran Du Lich, a member of the National Monetary and Financial Policy Advisory Council, said the central bank was hastening the banking sector's restructuring process with one of the main goals to reduce the total number of banks in the country to 20 or 25.

This move has quickened Merger & Acquisition (M&A) activities in the banking sector. If weak banks did not improve their financial capacity, they would face merger M&A deals, Lich said. — VNS

Comments (0)