Bank shares lose appeal; raising capital more difficult

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Commercial banks are having trouble boosting capital via the stock market as bank shares have become increasingly less attractive to investors.

An official at a bank who requested anonymity said the market hardly reacted to the news that his bank would issue shares to raise capital.

In previous years such information could boost bank share values sharply.

Analysts said bank shares, which used to lead the market, have lost their appeal due to their relative stabilty, making it hard for investors to earn short-term profits.

The dividend payout ratios of banks are also quite low. Moreover, the highest profit ratio at a commercial bank is around 26 percent, not really attractive if compared with other sectors' ratios of more than 30 percent, experts have said.

Issuing shares is one of the main methods commercial banks use to raise capital as they try to meet higher requirements from the central bank.

The government has required commercial banks to raise their registered capital to at least VND3 trillion (US$162.5 million) by December this year, which is triple the current minimum level of VND1 trillion.

Even for banks with capital of more than VND3 trillion already, the pressure to raise capital to expand their business is also high.

Analysts said that besides raising capital, banks should think about merger options, especially as competition in the sector is expected to strengthen as more foreign banks enter the country.

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