Banks joining race to raise capital

The bank also plans to hit a chartered capital of VND30,845 billion ($1.48 billion) by the end of 2012 after selling a 15 per cent stake to a foreign strategic partner. The bank failed in negotiations with Nova Scotia, one of Canada’s largest banks, to sell a 15 per cent stake this year.

Another giant  BIDV plans to sell a 15 per cent stake to a foreign strategic partner in this year’s fourth quarter to lift its chartered capital to VND26,000 billion ($1.25 billion) from VND23,011 billion ($1.1 billion).

Other banks to raise chartered capital from domestic sources this year include Maritime Bank, Sacombank, Techcombank, Eximbank, DongA Bank and Nam A Bank. Chartered capital hikes will help banks reduce liquidity risks and open up merger and acquisition possibilities.

Keith Pogson, managing partner of Ernst & Yong Asia-Pacific, said domestically raised capital was good, but the jury was out on the use of strategic investors. “Banks who will be more successful must have sustainable competitive advantages such as a good brand, innovation, safety and good services. If banks believe or recognise they do not, then it is worth thinking about strategic investors,” said Pogson.

However, the 20 per cent restricted ownership rule for a single foreign institutional investor at Vietnamese banks can turn off potential foreign stakeholders. “Foreign investors are often worried about how they will influence a business and that is something that has to be considered up front,” said Pogson.

Pham Hong Hai, director of HSBC Vietnam’s capital and monetary division, argued that issuing shares to existing shareholders or to the public currently might be blocked by weak market liquidity, while some banks’ existing shareholders which are state-owned corporations had to divest capital from non-core businesses.

“At the present, raising capital by selling stakes to foreign partners, merging with a stronger domestic bank or issuing bonds are the most suitable methods.

“But in foreign-invested banks, domestic shareholders always want their banks to grow as fast as possible and as profitably as possible, that is very risky for banks. Thus, there might be disagreement in developing strategy between foreign and domestic shareholders,” he said.
Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission, noted that the pervasive cross-ownership in the banking system meant chartered capital increases might not be real funds.

According to Nghia’s statistics, the banking system’s total chartered capital climbed from $500 million in 2000 to $12.5 billion in 2011.