VietNamNet Bridge – Most banks have had to cancel or delay their plans to increase chartered capital because of current economic conditions.

Many commercial banks had announced that they were going to issue more shares to increase chartered capital.

Viet A Bank, Nam A Bank, Saigon Bank and OCB revealed they would raise  chartered capital to VND4 trillion this year.

Even Sacombank, a big player in the market with the capital of over VND10 trillion, also wants to have VND1 trillion more before it admits Southern Bank. The bank plans to have VND13.483 trillion in chartered capital by the end of 2014.

Analysts commented that most commercial banks want to raise their chartered capital now. Small banks want to become stronger to avoid a hostile takeover by the “big guys”. Meanwhile, big bankers want to have more capital to improve their competitiveness.

However, there exists a gap between the “wish” and the “feasibility”. The Board of management of Dong A Bank, after getting the nod from the State Bank on its plan to increase chartered capital from VND5 trillion to VND6 trillion, has asked shareholders to hand in money for shares.

However, the bank still did not get enough money by the deadline, December 17, 2013.  Shareholders had handed in VND90 billion, while promising to contribute VND610 billion more.

Eximbank also cannot fulfill its plan on raising chartered capital, though the capital will be sourced from bonus shares and dividends.

In 2013 shareholders at a meeting decided that Eximbank would issue VND756 billion worth of shares to have VND13.111 trillion by the end of 2013. This means that the ratio of the shares to be additionally issued on the existing shares is 6.12 percent.

Under the initial plan, Eximbank’s shareholders would receive 12 percent in dividends for 2013, of which 6.12 percent would be given in shares to serve the capital increase plan, while the remaining 5.88 percent would be paid in cash.

However, the bank still cannot do what it planned, although the 2013 fiscal year is over.

Le Xuan Nghia, a well known finance expert, commented that banks have taken cautious steps when canceling or delaying their share issuance to increase chartered capital.

Nghia said it would be ineffective to issue shares now when the stock prices are on the decrease. Meanwhile, some small banks are going to merge with others, thus making it difficult to attract investors.

The fact that too many banks have to merge with others has been blamed on the State Bank’s wrong decisions in the past. The central bank licensed too many banks, and then forced banks to increase their legal capital to at least VND3 trillion.

Meanwhile, rural banks were upgraded into urban banks, which also were required to have at least VND3 trillion in legal capital. This is believed to be the origin of cross-ownership, a big problem now existing in the banking system, as bankers had to mobilize capital from different sources to have enough capital as required.

DNSG