At the Annual General Meeting of Shareholders, it was decided that all banks would issue billions of additional shares to pay for dividends in 2022. This decision will inadvertently put pressure on bank stocks.
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Billions of shares
According to statistics, banks added about eight billion shares to the market by paying dividends in 2021. If one includes private placement and offering to existing shareholders, the number of newly issued bank shares on the market is about ten billion shares. The fact that banks have rushed to put billions of shares into circulation has caused banks to face a downward pressure, especially when the stock market is adjusting sharply after the impact of strict social distancing during the Covid-19 pandemic in the third quarter of 2021.
In the second half of 2021, many bank stocks plunged sharply after closing the right to pay dividends for the year. Typically, Vietnam International Commercial Joint Stock Bank (VIB Bank) lost nearly 27% of its value after four months of paying dividends. Similarly, VietinBank also decreased value by about 25% after three months of closing the right to pay more than 30% dividend in shares.
The trend of issuing shares to increase capital now continues in banks. At the Annual General Meeting (AGM) this year, many banks submitted plans to issue shares to pay dividends and approved tens of billions of shares. For instance, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) will issue a maximum of 2.2 billion shares to pay dividends at the rate of 50%, Vietcombank will issue 856 million shares to pay dividends at the rate of 18.1%, Military Commercial Joint Stock Bank (MB Bank) will issue 755.6 million shares to pay dividends at the rate of 20%, Asia Commercial Bank (ACB) will issue more than 675 million shares to pay dividends at the rate of 25%, and HDBank will issue more than 500 million shares to pay dividends at the rate of 25 %.
The plan to issue shares to increase capital will help banks improve their financial ownership. According to BIDV Securities Company (BSC), the CAR Basel II ratio of banks is forecast to continue to be at a high level in 2022, and the ratio of short-term capital for medium and long-term loans will be kept at a safe level. This will be maintained in the future with plans to increase capital, thereby helping in increasing the size and profit of banks.
According to Mr. Ngo Chi Dung, Chairman of Board of Directors of VPBank, the capital increase in 2022 has nothing to do with stock market movement. Because VPBank raised capital from sources such as through ESOP issuance, private placement for strategic shareholders, increased capital from profits, and undistributed surplus funds. These issuance sources do not depend on the stock market. Therefore, VPBank capital increase plan is very favourable.
Shareholders worried
The plan to issue shares is worrisome for many shareholders. Many shareholders expressed their anxiety through strong questioning of the Boards of Directors of banks at the AGM. Leaders of many banks also admitted that there were reasons for shareholders to be so concerned. Responding to the concerns of shareholders, VCB leaders had to admit that the share price had decreased according to the regulations on dilution after the bank paid dividends in shares and cash at the beginning of the year. However, referring to the VN Index and VN30, the market price of VCB continues to be maintained and is increasing again.
Similarly, the Board of Directors of Saigon-Hanoi Commercial Joint Stock Bank (SHB) also answered investors when asked at the General Meeting of Shareholders why the bank recorded positive business results when the share price dropped sharply and was the reason the bank issued the stock. Shareholders suggested that SHB should not issue shares to increase capital this year. Instead, the Board of Directors should use profits to buy back SHB shares as treasury shares when the market price is low.
Mr. Do Quang Hien, Chairman of SHB explained that the issuance of shares to increase capital is to ensure international standards, safety, and sustainability. The Board of Directors considered and came to this decision, aiming to improve the health and financial capacity of the bank. Mr. Hien further shared that the price in the market sometimes goes up and sometimes it goes down. However, if investors analyse carefully, they will find that currently, the value of SHB shares is higher than the market price and we should have faith to invest in valuable and sustainable stocks.
The explanations given by leaders of banks certainly did not satisfy the shareholders attending the AGM. However, according to an investor who was holding bank shares, issuing shares to increase capital will be a positive factor for the bank in the long term. However, once individual investors spend money to buy shares, they expect actual value and not wait for the price of the stock to increase.
What investors are most concerned about is that if banks continue to issue shares to increase capital, would share prices be as attractive or not. In the report on the banking sector for the second quarter of 2022, the banking industry has an attractive valuation compared to profit growth, and many supporting factors can take place that will help banking stocks to grow. The growth rate of the banking industry will be better than the previous forecast. Specifically, the growth rate increased to 36.4%, compared to 22.2% previously, because of post-pandemic recovery and lower margins in 2021.
Currently twenty-seven bank stocks are trading on the stock market, of which seventeen are listed on HoSE, two are listed on HNX, and eight are listed on UPCoM.