Banks rush to raise chartered capital to avoid hostile takeover

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VietStock FI English - 31 month(s) ago 4 readings

A lot of commercial banks are considering increasing their chartered capital to protect themselves when necessary, from the attempts of the “big fish” taking them over.

The board of directors of many commercial banks is going to submit the plan to increase chartered capital in the “shareholders’ meeting season.”

The 2012 shareholders’ meeting of ACB has approved the plan to increase the chartered capital by 3 trillion dong from 9300 billion dong to 12,300 billion dong. Dong A Bank’s leadership has also got the nod from shareholders on the plan to issue more shares to the existing shareholders in order to increase the chartered capital from 5 trillion dong to 6 trillion dong.

A US dollar is equal to 21,000 Vietnam dong.

The equitized Vietinbank, in which the State still holds the controlling stakes, has got the approval from the State Bank to increase the chartered capital from 20,230 billion dong to 26,217 billion dong.

Other big banks, including Sacombank, Techcombank, Eximbank and Maritime Bank have also revealed the plan to raise chartered capital in 2012.

Vu Dinh Anh, a well-known finance expert, said on Thoi bao Kinh te Saigon that there are two reasons that prompt banks to increase their chartered capital. Firstly, banks want to become stronger.

Currently, when comparing the scale of banks, people always pay attention to the chartered capital of the banks. Bigger chartered capital is believed to help banks better themselves and list themselves among the top banks in Vietnam, which also means that it would be easier for them to mobilize capital from the public.

Secondly, according to Anh, banks want to have the “shields” which can help protect them from the attempts by the big fish to swallow them. Once banks have bigger capital, they would face the lower risks of being swallowed.

Besides, Anh said that the share issuance to raise chartered capital could be seen as the test which can show the shareholders’ credit to the banks. In the current conditions, if investors still buy additionally issued shares, this means that they have confidence in the development of the banks.

Meanwhile, Le Xuan Nghia, a well-known economist, who was the member of the National Advisory Council for Monetary Policies, has expressed his worry about the banks’ plan to increase chartered capital.

According to Nghia, by the end of 2000, the chartered capital of the whole banking system had reached 500 million dollars, while the total assets had reached 10 billion dollars. The figures rose to 12.5 billion dollars and 180 billion dollars, respectively, in 2011, representing a sharp increase of 18 times.

“Where does the capital come from? Is the capital from the banks’ profit, or from the public?” he questioned.

According to Nghia, the money still mostly comes from the pockets of the owners, while the cross ownership (the owners of some banks may also hold the shares of other banks) allows them to use the capital from some legal entities to contribute to other entities. The owners would withdraw the capital to inject in other businesses after the watchdog agencies recognize the new levels of chartered capital.

Nghia has affirmed that the sources of the money to be contributed to banks are not clear. Therefore, in many cases, the increased capital is just the “virtual capital.” Therefore, the wave of raising chartered capital may not be a good thing for the banking system.

A problem still exists that while banks’ chartered capital increases, the quality of their assets is still low, while the bad debts are still big and the risk management has been loosened.

Meanwhile, some analysts have warned that it would be not easy to persuade investors to inject more money in banks since the dividends of the banks in 2011 were modest, at 10 percent per annum.

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