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Vietnam Business » Vietnam Banking News » Catch-22 for small banks raising chartered capital

Catch-22 for small banks raising chartered capital

Many joint-stock banks grumble that they find it hard to persuade shareholders to contribute more capital to raise their chartered capital as required by the State Bank of Vietnam (SBV). The shareholders only receive small dividends, and yet they are asked to make big capital contributions.

Increasing capital is a must. . .

Small joint-stock banks with chartered capital of less than three billion dong must have at least three billion dong in chartered capital by the end of 2010 as per the Governments orders.

At the shareholders meeting of Nam A Bank, many felt sad because of modest dividend levels of 3.5 percent. When requested to contribute more money to increase the chartered capital from 1200 billion dong to 3000 billion in 2010, the shareholders responded that the plan is unfeasible because dividend levels are lower than bank deposit interest rates.

Similarly, Gia Dinh Bank shareholders feel unhappy with low dividends of 4.7 percent for 2009. Meanwhile, the bank must triple its chartered capital from 1000 to 3000 billion dong this year. The bank proposed that, if existing shareholders do not take all the shares, it will sell shares to domestic investors at prices not lower than those at which shares sell to existing shareholders.

Though Gia Dinh Bank plans to increase its chartered capital to 3 trillion dong, it set a modest plan of 200 billion dong in pre-tax profit for 2010 and low dividend levels of eight percent.

Kien Long Bank will also strive to increase its chartered capital to 3000 billion dong by the end of 2010. To persuade shareholders to contribute more money, the bank will offer attractive dividends.

Meanwhile, in late 2009, the bank adjusted the yearly profit target from 180 billion dong to 120 billion, also lowering dividends from 10 percent to 7. In 2010, with an expected chartered capital of 3 trillion dong, Kien Long Bank expects 300 billion dong in profit. However, bank officials admitted that this will be a big challenge.

Western Bank also plans to increase its chartered capital from 1000 to 3000 billion dong. The bank will also list shares on the bourse in April 2010 to create favourable conditions for increasing capital.

The banks directors admitted that it would be not easy to persuade individual shareholders to contribute more money, so the bank will rely on big shareholders and institutional shareholders to raise the funds.

. . . but its not easy work

Nguyen Van Cong, a shareholder of Kien Long Bank, explained that the banks shares are now selling at some 10,500-11,000 dong on the market (the face value is 10,000 dong).

He noted that it is not easy to find buyers while dividends are much lower than the bank deposit interest rates. "Therefore, purchasing Kien Long Banks shares would not be the optimum choice," he added.

Commenting on small banks, analysts note that they are caught in a vicious cycle. Banks profits are not high enough to satisfy investors, who then will not contribute to increasing chartered capital.

Yet, since chartered capital is low, banks cannot open more branches or invest in technologies and provide more services to earn more money. As a result, banks cannot make high profits for their shareholders.

Vietnam Business And Financial News Network. Source [english.vietnamnet.vn]

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