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Restructuring, bad debts prevent banks from paying dividends

Update: June, 15/2020 - 08:49

Sacombank has not paid out dividends since 2015, a policy that has caused frustration among shareholders. — Photo nongthonviet.com.vn

At Sacombank’s annual general meeting held on June 5 its permanent vice chairman Phạm Văn Phong said that in 2019 the bank’s pre-tax profit increased by 43.2 per cent to VNĐ3.2 trillion (US$137.5 million), which was 21.4 per cent above the target.

Earnings per share was VNĐ1,119, VNĐ338 up from 2018.

Its total assets at the end of 2019 were worth over VNĐ453.58 trillion ($19.4 billion), an increase of 11.7 per cent during the course of the year.

Despite the stellar performance the lender’s executive board decided not to pay dividends to shareholders.

Sacombank has not paid out dividends since 2015, a policy that has caused frustration among shareholders.

Its chairman, Phạm Công Minh, said its profits are quite high and the bank wants to pay dividends to shareholders but is not allowed yet.

It is still going through a restructuring process after merging with SouthernBank in 2015, and so is required by the central bank to focus its resources to implement this task, he said.

Shareholders will get dividends once the plan is complete, or they can sell their shares when the price goes up, he said.

But he pledged the bank would start paying dividends immediately after completing the restructuring plan in one or two years.

Sacombank is not only the lender not paying dividends in recent years.

After merging with Ficombank and TinNghiaBank in 2011, Sai gon Commercial Joinst Stock Bank (SCB) has also been instructed by the central bank to focus on restructuring.

The central bank approved the second phase of the bank’s restructuring plan in March.

This means SCB will continue to not pay dividends for several more years, retaining more than VNĐ1,234 billion of its earnings, and using VNĐ521 billion to increase its charter capital.

The settlement of bad debts with the Vietnam Asset Management Company (VAMC) is another key factor that has prevented banks from paying dividends.

SCB holds VAMC bonds against its bad debts worth over VNĐ20 trillion and has made provisions for more than 40 per cent of them, equivalent to VNĐ11 trillion.  

Vice chairman of the Maritime Joint Stock Commercial Bank, Huỳnh Bửu Quang, said at the bank’s annual general meeting on May 20 that the profit for 2019 was VNĐ900 billion, but dividend payouts would have to wait since the bank not yet settled its bad debts with the VAMC equivalent to the profit figure.

He expected a dividend payment in the third quarter of this year by which time the bad debts could be cleared.

But analysts warned that this timeline might not be feasible since more new bad debts could arise due to the Covid-19 pandemic.

They estimated non-performing loans to rise by 0.5-1 percentage point this year.

According to the State Bank of Việt Nam’s estimation, the bad debts in the balance sheet and sold to the VAMC will increase to 4 per cent and 3.7 per cent if the pandemic is controlled in the second quarter of the year.

But it could rise even higher levels, thus affecting banks’ restructuring and bad debt write-offs.

This is already evident from the first quarter results of some banks.

Sacombank, for instance, saw new bad debts of VNĐ300 billion, taking the total figure in its balance sheet to VNĐ6.046 trillion.    

The bad debts in SCB’s balance sheet increased by VNĐ377 billion, taking its bad debt ratio sharply up from 1.96 per cent to 2.65 per cent.

Experts from the central bank warned that around VNĐ2,000 trillion, or 23 per cent of total outstanding loans, carried implicit bad debt risks due to the impacts of the pandemic, a quarter of it in the manufacturing sector. 

Meanwhile, a report from the VAMC said the principal outstanding it managed to recover last year was around VNĐ69.78 trillion.

Other industries more generous towards shareholders

While many banks refuse to make dividend payments, companies in other industries are ready to keep their shareholders happy.

Imexpharm Pharmaceutical Joint Stock Company announced recently that it would pay dividends in cash and shares of 10 per cent each. It also plans to use its retained earnings to issue 20 per cent bonus shares.

Known as a company that has always paid high rates of cash dividends, Nam Tân Uyên Industrial Park (NTC) has decided to pay 100 per cent for 2019. It had already paid an interim dividend of 50 per cent in cash.

The management of Saigon Real Estate Joint Stock Company said it would table a 15 per cent cash dividend plan for approval at this year’s annual general meeting.

Đồng Nai Port Joint Stock Company (PDN) has made dividend payments of 30 per cent in two tranches of 15 per cent each in February and June.

Cash dividends are helping prop up companies’ share prices since bank deposit interest rates have been slashed and are expected to be cut further.

In the last two months the price of NTC shares increased by nearly 50 per cent from VNĐ53,000 to VNĐ77,300 per share with the liquidity averaging 600,000 units per session.

Similarly, PDN shares rose by 2.5 per cent to VNĐ67,000 each right after the company announced its dividend plans. — VNS

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