Shareholders grow weary of bank shares

The dividend payout has been a common cause of shareholder distress at the annual general meetings (AGM) of monetary instutions held in recent months. Disgruntled shareholders asked banking board members why they have not received their annual dividend payment in cash for years.

At the AGM of Saigon-Hanoi Bank (SHB) held last month, shareholders were unhappy about receiving dividend payments in additional shares for the previous two years, and called on SHB to make it in cash in 2016. However, SHB chairman Do Quang Hien said that whether the “dividend payout is made through an additional share issuance or in cash should be decided at next year’s AGM, after the bank completes its 2016 financial year.”

Meanwhile, at BIDV’s AGM at the end of April, shareholders were frustrated over the bank’s trimming the 2015 dividend payout ratio, down from the initial target of 9 per cent to 8.5 per cent. In addition, the bank announced that the dividends will be paid in the form of shares instead of cash. Finally, much to the chagrin of shareholders, the bank revealed its plan for a 2016 dividend payout ratio of a thin 7 per cent.

BIDV’s board of directors explained that the slash in the dividend payout rate was a result of the merger with state-owned Mekong Housing Bank (MHB) conducted last May. Following the 1:1 share swap that BIDV offered for each MHB share, the number of shares rose significantly, which, according to the bank, made the targeted payout ratio of 9 per cent unfeasible.

BIDV added that the 2015 and 2016 ratios of 8.5 per cent and 7 per cent are still higher or equal to the current 12-month deposit rate of 7 per cent, thus ensuring shareholders’ benefit.

According to BIDV, paying dividends via the issuance of shares could help the bank bolster its chartered capital from VND34.19 trillion ($1.57 billion) to VND43.63 trillion ($2.0 billion) by the end of 2016. This would mark an increase of roughly 28 per cent, or VND9.45 trillion ($433.3 million). Of the VND9.45 trillion, the dividend payout through shares would account for 17 per cent, equal to VND5.83 trillion ($267.2 million).

Although each bank has various reasons explaining their dividend payout in shares, certain experts claim that banks probably have no choice but to avoid a cash payout in order to maintain long-term sustainability in their development.

Prior to making any dividend payouts, banks should satisfy all their dues, make adequate risk provisions, and factor in any additional capital need for growth or investment.

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