Binding - Securities Firms Facilitate Banking Expansion

 

According to Dr Le Hoang Nga of the Banking Institute, commercial banks, especially commercial joint stock banks, are racing to issue shares to raise their chartered capital to at least VND1,000 billion (US$62.5 million).

 

Their equity is soaring. By the end of 2005, the average commercial bank had VND800 billion (US$50 million) chartered capital, but now many have exceeded VND1,000 billion, such as Sacombank (VND2,089 billion), ACB (VND1,100 billion), Southern Bank (VND1,290 billion), Techcombank (VND1,500 billion), Eximbank (VND1,206 billion), An Binh Bank (VND1,131 billion), Military Bank (VND1,045 billion) and VIBank (VND1,000 billion). Moreover, many A-grade commercial banks are planning further charter capital rises, like Sacombank to VND4,500 billion, Eximbank to VND2,800 billion, VIBank to VND2,500 billion and East Asia Bank (EAB) from VND880 billion to VND1,400 billion then to VND2,000 billion by the end of 2007. Coupled with the chartered capital rise, shares of commercial banks like EAB, Eximbank, Military Bank, Habubank, VIB Bank and VP Bank soared to record prices on the OCT market.

 

State-run commercial banks are also speeding up completion of their equitisation plans, which are expected to finish ahead of the government schedule. BIDV and Incombank are examples. State-run banks think this is a good time to go public, waiting may only make it harder. As for investors, they are confident of bank shares and believe in bank capacities.

 

Dr Vu Dinh Anh, the Institute of Finance Science under the Ministry of Finance, said the banking credit market and the stock market have both cooperative and competitive relations. The more developed the stock market, the more benefit the banking system takes. On the contrary, depression or collapse of the stock market negatively impacts banking operations. However, bankruptcy of commercial banks rarely happens because they safety mechanisms the stock market does not have.

 

First of all, the stock market provides a capital mobilisation channel in addition to banking credit sources; thus, the stock market deprives the banking system of its monopoly in both mobilising idle cash and investing in companies. Previously, enterprises depended, for 80 per cent of investment capital, on the banking system. Now, enterprises can draw idle public cash by issuing shares, reducing the capital supply pressure on the banking system. The development of the stock market shares this risk with the banking system. This helps commercial banks pay more attention to short-term credit, and especially developing non-credit banking services.

 

“Of course, when the stock market becomes more popular and attractive, a certain proportion of cash will be withdrawn to invest in stock trading. Banks must raise interest rates to compete with the stock market,” Mr Anh said. However, this pressure is not heavy and a proportion of returns from share issuance and stock trading is sent back to the banks.

 

According to experts, the stock market is a playground for “big players” who have strong financial capacities to rule and orient the market. Together with financial institutions like insurance companies and securities investment funds, commercial banks should not waste the opportunity to set up subsidiary securities companies to provide services related to stock trading. This is partially responsible for commercial bank’s impressive profits since 2006.