Financial institutions aim for augmentation of their authorized capital during the latter half of the year.

Several banks in Vietnam have announced plans to increase their charter capital this year, following approval from their general meeting of shareholders. The specific details of these plans, however, have not been disclosed.

The charter capital increase is essential for banks to improve their capital adequacy ratios (CAR), consolidate their financial foundations, expand growth space, invest in digital transformation, develop new products, and enhance competitiveness.

One such bank, Nam A Bank, plans to increase its charter capital from more than VND13.7 trillion to more than VND18 trillion. This increase will be achieved through issuing shares from equity capital to pay dividends and issuing ESOP shares.

Another bank, VietinBank, plans to issue nearly 2.4 billion shares to pay dividends, which could increase its charter capital from VND53.7 trillion to VND77.67 trillion.

The State Bank of Vietnam (SBV) has recently approved SHB to issue shares to pay dividends in 2024 to existing shareholders at a rate of 13%. After the issuance, SHB's charter capital will increase from nearly VND40.66 trillion to more than VND45.94 trillion.

Banks are applying various methods to increase capital, including issuing shares, private offerings, and issuing bonds.

Benefits of Increasing Charter Capital Through Bond Issuance for Banks

Issuing bonds is considered an effective solution for banks to raise medium- and long-term capital, which enhances financial stability and supports business growth. Here are some benefits:

Attracting Medium- and Long-Term Capital: Bonds provide banks with a reliable source of capital over a longer period, improving their financial stability and supporting business growth.
Meeting Regulatory Requirements: Increasing charter capital improves a bank's CAR, enabling it to withstand financial risks better and comply with stricter regulatory standards.
Enhancing Lending Capacity: Higher charter capital expands the bank's asset scale and credit growth capabilities, allowing more loans to be extended to customers.
Supporting Business Expansion and Competitiveness: With more capital, banks can maintain or improve their market position, as seen in SHB’s plan that maintains its standing among the largest private banks after capital increase.

Strategies for Banks to Increase Charter Capital via Bond Issuance

Issuing Bonds as a Medium/Long-Term Funding Instrument: Banks choose bond issuance to attract investors seeking stable returns over a longer horizon, providing banks with reliable capital inflows.
Combined Capital Raising Methods: Banks often use bond issuance alongside other methods such as issuing shares to pay dividends, private placements, and selling shares to foreign investors, diversifying their capital sources.
Regulatory Approval and Planning: Banks submit their capital increase plans to regulatory authorities for approval, ensuring compliance and feasibility of the bond issuance and other capital raising activities.
Targeting Professional and Institutional Investors: Banks may engage professional investors in private placements to secure substantial capital injections, often with existing shareholders participating to maintain confidence and support.

In summary, bond issuance allows banks to efficiently raise stable and sizable capital over the medium and long term, which is crucial for regulatory compliance, expanding credit capacity, and sustaining growth. This strategy is often integrated with equity-based methods and requires regulatory approval and investor targeting to be successful.

Dr Châu Đình Linh from the Banking University of HCM City states that the capital increase of banks is becoming increasingly urgent. The capital adequacy ratio (CAR) of Vietnamese banks is lower than the average rate of regional peers, and banks must proactively increase capital to meet requirements and ensure operational safety.

Increasing capital through retained earnings is a reasonable solution in the current period, according to Dr Nguyễn Hữu Huân. The race to increase charter capital is a mandatory requirement for banks to maintain financial capacity, meet international standards, and support sustainable economic growth.

This trend is expected to continue strongly in the future, with banks having to balance the credit growth target and ensure asset quality, especially in the context that the Government sets a minimum GDP target of 8%. Capital from issuing bonds supports banks' long-term loans and meets the ratios prescribed by the SBV.

Issuing bonds is a popular method for banks to attract medium- and long-term capital. The central bank targets to promote credit growth for the whole year to 16% in order to support capital flow for the economy. In 2025, the race to increase charter capital in the banking industry is expected to continue.

The increase in charter capital through bond issuance is a strategic move for banks to enhance their financial stability, as it provides a reliable source of medium- and long-term capital.
By increasing charter capital, banks can improve their capital adequacy ratios (CAR), enabling them to comply with stricter regulatory standards and withstand financial risks better.
Issuing bonds also allows banks to expand their lending capacity, as higher charter capital increases the bank's asset scale and credit growth capabilities.
Capital raised through bond issuance can support banks' competitive position, as seen in SHB's plan to maintain its standing among the largest private banks after capital increase.
In addition to issuing bonds, banks often use a combination of capital raising methods, such as issuing shares to pay dividends, private placements, and selling shares to foreign investors, to diversify their capital sources.

Financial institutions aim for augmentation of their authorized capital during the latter half of the year.