Banks to maintain stock dividend payouts for capital boost and cash flow growth

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Banks are set to continue their practice of paying stock dividends this year in order to bolster their capital and attract cash flow, driven by positive prospects.

Bắc Á Commercial Joint Stock Bank (Bắc Á Bank) is making preparations to issue over 62.5 million shares, equivalent to a 7.5 per cent dividend rate. Similarly, the Saigon Bank for Industry and Trade (SaigonBank) plans to issue shares for dividend payment at a rate of 10 per cent. Recently, the State Bank of Vietnam (SBV) has approved the increase in charter capital for the National Citizen Commercial Joint Stock Bank (NCB) and Liên Việt Post Joint Stock Commercial Bank (LPBank).

Over the past year, more than 20 commercial banks have received approval from SBV to enhance their charter capital. It is anticipated that during the 2024 general meeting of shareholders, several joint-stock commercial banks will announce their intentions to pay dividends in shares, thereby bolstering their capital.

Numerous major banks have already announced plans to increase capital through stock dividends. Trần Bình Minh, Chairman of the Board of Directors of Việt Nam Joint Stock Commercial Bank for Industry and Trade (VietinBank), revealed that the bank has obtained approval from SBV and the Ministry of Finance to retain all profits from 2022 and onward for capital increase through stock dividends.

"Increasing capital, improving financial capacity, and expanding credit growth space are VietinBank's objectives. We propose the authorities allow us to retain all profits in 2023 for capital increase and approve the policy of retaining all annual profits from 2024 to 2028," said Minh.

Given the high level of non-performing loans and pressure on capital supply for the economy, fortifying the banking system's capital base is of utmost importance, aligning with the State bank's policy. SBV Deputy Governor Đào Minh Tú encouraged VietinBank to pay dividends in shares in order to concentrate financial resources on managing bad debts in 2024.

Bank stocks exhibit substantial growth potential, as evidenced by their impressive performance in the early weeks of 2024. Trương Hiền Phương, Senior Director of KIS Việt Nam Securities Company, explained that the increase in bank stock prices at the start of the year can be attributed to several positive factors, including the SBV's favourable credit allocation for 2024 and reduced lending interest rates, which can stimulate credit demand.

The SSI Securities Company Analysis Center (SSI Research) predicts that credit could rise by 14 per cent in 2024, primarily driven by corporate customers. They also anticipate a recovery in net interest margin (NIM) by 9 basis points and a growth of around 7 per cent in non-interest net income. However, SSI Research cautions that increasing bad debts and challenges in the real estate and corporate bond markets pose risks.

In light of these mixed difficulties and advantages, SSI Research analysts maintain a neutral outlook on banking stocks in 2024. The process of strengthening reserve buffers will continue, which may prevent the industry from experiencing rapid profit acceleration, except for banks with robust asset quality and ample credit room.

On the other hand, KBSV Securities Company believes that the overall industry outlook shows promising signs, justifying a revaluation of banking stocks at a higher level. Investors can consider banks with solid buffers, safe development strategies and low bad debts, as well as banks that possess competitive advantages and stand to benefit from the recovery of the real estate sector.

However, experts advise investors to exercise caution as bank stock trends tend to be short-lived, making them more suitable for medium and long-term investments.

Quản Trọng Thành, Director of Analysis at Maybank Investment Bank Securities Company (MSVN), suggests that investors closely monitor the first-quarter business results of 2024, as well as profit targets and bank dividend plans for the year. Additionally, it is important to observe the recovery of the banking sector alongside the real estate and corporate bond markets.