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Bank shares exceed face value due to rising bad debts

Bank shares exceed face value due to rising bad debts

Friday 17, 07 2020
Although the business was profitable, the bad debt continued to increase, making the stock market movements of some banks on the floor to be not very satisfactory.

Of the 18 bank stocks listed on HoSE, HNX, and traded on UPCoM, 3 stocks, namely LPB, NVB, and KLB, fluctuated around par values as of July 6. According to experts, shares below par value will make it difficult for banks to raise capital in the stock market.

  • Contrary to profitability

After nearly 3 years of being listed on UPCoM, KLB's share price of Kien Long Commercial Joint Stock Bank (Kienlongbank) has only fluctuated around VND 9,000 - 10,000 / share (in the trading session on 7/7, KLB traded at VND 9,900 / share).

It is worth mentioning that, at the general meeting of shareholders in 2020, Kienlongbank's shareholders approved the business plan in 2020 with the target of EBT of 750 billion dongs, nearly 9 times higher than the number achieved in 2019. Previously, by the end of 2019, Kienlongbank's profit before tax was only VND 86 billion, down 70% compared to 2018, and only completed 28% of the year plan. However, according to some analysts, although the business results are expected to grow strongly, the "overcoming" path of KLB shares will not be easy in 2020 because NPLs are still "points." weak "core of this bank.

Financial statements for the first quarter of 2020 of Kienlongbank showed that the bank's group 5 debt soared by VND 1,888 billion, equivalent to an increase of 790%. Non-performing loans increased by VND 1,898 billion, equivalent to 555%. NPL ratio increased dramatically from 1.02% to 6.62%. Moreover, with high bad debt, Kienlongbank suddenly increased its provision for credit risk provisions 37 times compared to the same period in 2019, accounting for nearly 69 billion VND. That is the reason why the profit before tax and after-tax dropped by 23% YoY to over 57 billion dongs and 46 billion dongs.

Kien Long Bank

Similarly, for many years, LPB shares of Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank) were not much better when it only revolved around face value. From the beginning of 2020 until now, LPB shares only fluctuated around VND 7,000 - 9,000 / share. In the trading session on 7/7, LPB shares traded at 8,500 VND / share. "Road to face value" of LPB shares is also longer when the bad debt of LienVietPostBank is increasing.

Financial statements for the first quarter of 2020 showed that the bank reached VND 485.6 billion in after-tax profit, an increase of 18.3% compared to the same period in 2019. However, the provision for credit risk provisions of LienVietPostBank VND 37.3 billion, a sharp increase compared to the negative figure (-) of VND 133.4 billion in the first quarter of 2019. According to the notes to the financial statements for the first quarter of 2020, non-performing loans of groups 3 and 4 at LienVietPostBank respectively increased by VND 123.8 billion and VND 31.7 billion compared to the beginning of the year. Meanwhile, after being listed on the HNX at VND 11,900 / share in 2010, NVB's share price of Quoc Dan Commercial Joint Stock Bank (formerly Navibank) continuously went down. In the trading session on 7/7, NVB shares were trading around VND 8,900 / share. Since the beginning of 2020, NVB shares have fluctuated around VND 8,000 - 9,000 / share. Ever the stock price at NVB above VND 10,000 / share is still a question that seems to have no response.


  • Hard to raise capital

Analysts said that banking stocks were influenced by market information. With the characteristics of the industry, the effects of shareholders, interest rates, provision expenses, and especially bad debts directly affect the market price of stocks of this industry.

Therefore, the fact that the share price is deep below the face value makes it difficult for listed banks to successfully issue shares to raise capital.

"For example, if a bank's share price is only about VND 7,000 - 8,000 / share, but it is issued at par value of VND 10,000 / share, investors would rather buy at market prices than buy them issuance price of VND 10,000 / share, "an expert said.

"Investors who accept to buy shares issued at prices higher than the market price are mainly strategic investors who want to stick with the bank for a long time," an investor said.

This year, LienVietPostBank proposed a plan to increase capital by paying stock dividends. Accordingly, the bank will issue shares to pay dividends to exist shareholders at the rate of 10% of the total number of outstanding shares at the time of issuance (97,694,831 shares equivalent to VND 976 billion). The expected charter capital after the issuance of stocks to pay dividends in 2019 is VND 10,746 billion.

According to an investor, the attraction of the stock market is the opening of capital raising channels for businesses. However, with stocks below the par value of profitable businesses, investors can consider buying because the risk of price reduction is already very low, but it is impossible to avoid general market risks. In case the stock market movements are too bad, investors will not buy.

Dr. Can Van Luc - a finance and banking expert, said that one of the biggest goals of the bank when being listed on the stock market is to have access to long-term capital mobilization channels. In other words, the attraction of the stock market is the opening of capital mobilization channels for businesses and banks. However, if the listing does not raise capital for many years, the listing on the bank's floor will no longer matter.

Banks may lose billions of USD and struggle with bad debts due to Covid-19

Source: Vietnam Finance

Banking & Finance

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