New decree allows state-owned banks to retain profits

PHuong tHao

A new decree released by the government allows stateowned commercial banks to keep any profit made in order to increase their strength, rather than paying cash dividends to shareholders.

The government recently promulgated Decree 121/2020 which amends clause 2, Article 15 of Decree 91/2015 dated 13 October 2015 regulating the State capital invested in State-owned companies and management of State capital and assets in businesses.

The new decree allows government agencies to increase the State capital in joint stock companies and limitedliability firms with two or more board members. Commercial banks where the State holds more than 50 percent of the charter capital are subject to the new decree.

The amendments to Decree 91 have been long expected by commercial banks and will lay legal foundations for them to boost charter capital increase and meet the capital adequacy ratio (CAR), creating more room for growth. Capital increase for stateowned banks is one of the most important tasks of the banking sector and has repeatedly been emphasised by the governor of the State Bank of Vietnam in recent years.

Among the ‘Big Four’ banks, Vietnam Bank for Agriculture and Rural Development (Agribank) and Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) are in hot need of capital increase to ensure the CAR. Vietinbank’s charter capital hasn’t increased since 2014 while Agribank saw slow increase in its capital. Agribank is a wholly stateowned bank and it can only increase its charter capital through state budget sources. This year, no more than VND3,500 billion (USD150.8 million) from the state budget will be added to the bank.

Currently, BIDV holds the highest charter capital amongst banks, at VND40,220 billion (USD1.73 billion), followed by VietinBank (VND37,234 billion or USD1.6 billion), Vietcombank (VND37,088 billion – USD1.59 billion), and Agribank (VND30,641 billion – USD1.32 billion). The State Bank of Vietnam represents the government's stake in the banking sector and holds a nearly 81 percent share of BIDV, more than 64 percent of VietinBank, and nearly 75 percent of Vietcombank.

VietinBank and Vietcombank plan to issue bonus shares using their profits recorded in 2020 to increase capital, meeting Basel II standards, and preparing for any economic shocks caused by the prolonged Covid-19 pandemic and the instability of the global economy.

In 2019, BIDV issued over 603.3 million shares as a private placement to Hana Bank with total value of nearly VND20,300 billion (equivalent to USD875 million). After the deal, Hana Bank owns 15 percent of BIDV’s charter capital.