Vietnam Bank Dividend Season Bleak

Banking sector has always paid relatively high dividend, but this year, the dividend ratio may fall strongly due to low profit, and even maybe shareholders of commercial banks will not get dividend.

Profit is used to tackle bad debts.

In previous year, by this time, many commercial banks had announced to advance dividend for the first round of year for the shareholders. However, so far, only 2-3 banks have announced to advance dividend for shareholders.

Particularly, Dong A (Eastern Asia) Commercial Joint Stock Bank (DongABank-EAB) has paid dividend for the first three quarters of 2012 to the shareholders, averagely at 3 percent per quarter in cash.

Maritime Commercial JS Bank (Maritime Bank) has also announced to pay the first round dividend of 2012 at 7%. While so many other commercial banks have not had dividend payout plan for shareholders yet.

Explaining about this, Le Xuan Nghia, banking specialist, gave reasons. First, weak banks, which often face difficulties in liquidity and are classified in the group 3 and 4, are implementing restructuring plan as required by the State Bank of Vietnam (SBV). Accordingly, since early this year so far, the central bank has conducted many inspections on these commercial banks and detected that many commercial banks have bad debts ratio higher than the reported figure.

Therefore, these banks are restricted lending activities and have to spare for risk provision fund to deal with bad debts. This means that their profit will decrease. With commercial banks in group 1 and 2, which are allow to get credit growth at 15-17 percent this year, they also do not dare to lend much for the fear of bad debts.

In addition, the total outstanding loans of many commercial banks in this group have grown only 2-3 percent so far and their expected profit set early this year is hard to achieve, so they have not considered the dividend payout for the shareholders. Bad debts have not only affected commercial banks but also caused negative consequences for other investment channels such as securities, real estate and the economy. Thus, the major goal in restructuring the commercial banking system this year is to deal with non-performing loans (NPLs).

In 2012, as many as 32 commercial banks have been inspected comprehensively. Many commercial joint stock banks reported gaining profit, but through inspections, in fact they are getting lower profit or suffering from loss, lower chartered capital or even do not have chartered capital. Thus, shareholders of many commercial banks hardly expect to receive dividend in 2012. Till the end of October, NPLs of the whole banking system accounted for about 8.8-10 percent of the total loans.

Notably, the number of commercial banks, which have irrecoverable debts and have to spend 100 percent on risk provision fund, accounted for a quite high ratio (many banks have irrecoverable debts of up to 600-800 billion dong). In addition, the interest rates are constrained to less than 30-40 percent compared to the end of last year, resulting in lower profit of commercial banks.

In this context, many commercial banks though dong inefficient business plan to report to the shareholders in shareholders’ meeting season in early next year. However, some other commercial banks also organized shareholders’ meeting to adjust down the business plan in 2012. For instance, KienLongBank has recently held a shareholders’ meeting to reduce this year’s pre-tax profit plan by 14.5%, from 620 billion dong to 530 billion dong and dividend rate from over 12 percent to 10 percent and lower its total assets and total outstanding loans compared to the previous plan and the NPL ratio in total outstanding debts to increase from 2 percent to 3%.

Not long ago, Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank-STB) announced gaining pre tax profit of 2.259 trillion dong, or 66 percent of the year’s plan. But the bank has not determined the dividend ratio for the shareholders yet because it depends on spending on risk provision fund as required by the central bank.

According to a general manager of a commercial bank, this year if banks pay dividend at the interest rate cap of short term deposits at 9-12%/year, it is also positive. Because in the current market context. commercial banks have to share difficulties with enterprises, accept lower profit and restructure loans.

Additionally, banks have to worry about liquidity when the interbank market is squeezed, especially to handle bad debts, banks are difficult to complete their profit targets. This means that commercial banks have to accept to sacrifice part of their profits to keep customers.

Although some commercial banks announced their profit at trillions of dong, but comparing to the equity of few tens of trillions of dong, their profit rate is not high, only at about 15%. However, according to this leader, banks that keep safety and their bad debts unchanged are successful, so shareholders should certainly understand and share. Therefore, shareholders can only expect in the long-term future when investing in bank stocks.

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