Ten years without receiving a single dividend
Except for a few banks that pay dividends in cash such as VPBank, ACB , Sacombank, VIB, etc., most banks choose to pay dividends in shares as a way to increase charter capital. This has been repeated by banks for many years, causing small shareholders who do not have a say in the decision to be "angry to the core".
At the General Meeting of PG Bank, answering a shareholder's question about the reason for not discussing the dividend plan, Mr. Nguyen Quang Dinh, Chairman of the Board of Directors, said that we still have to wait for the opinions of new shareholders.
PG Bank is completing procedures to receive new institutional shareholders after Petrolimex withdrew capital. Therefore, the Chairman's answer easily received consensus from small shareholders.
Unlike PG Bank, Sacombank 's general meeting was "stirred up" by enthusiastic older shareholders. An elderly female shareholder questioned the bank's deductions from the bonus and welfare fund (VND 404.7 billion in 2022), but ignored the dividend payment.
“We have not received dividends for 7-8 years. You keep beating around the bush, we do not accept. You go straight to the point: will we pay dividends or not?... We contribute money for you to spend and then do not give you any money, we do not agree with that,” said the shareholder.
Faced with such frustration, Sacombank's leaders explained that the bank is in the process of restructuring and has not yet met the prescribed conditions to pay dividends. The handling of STB shares owned by Mr. Tram Be and related parties to recover debts has not been carried out.
“Currently, Sacombank’s undistributed retained earnings are VND12,700 billion. After completing the stock settlement and receiving permission from the State Bank, the bank will implement a plan to distribute dividends to shareholders,” a Sacombank representative replied.
It is not uncommon for bank shareholders to go decades without receiving cash dividends. Techcombank shareholders, for example, have gone through this for the 12th consecutive year. However, shareholders of this bank have every right to expect to receive cash dividends in the following year.
Techcombank Chairman Ho Hung Anh said: “I remember in 2013, also at the General Meeting of Shareholders, I said that the Bank would not pay cash dividends in the next 10 years. This year is the 10th year and I think this will be the last year without paying cash dividends. Anything can happen, but the bank will always ensure the rights of shareholders, and at the same time, must also ensure the bank's operations.”
Bank "stuck"
At ABBank's General Meeting, a small shareholder expressed his opinion that the bank's practice of paying dividends in shares instead of cash does not really care about the interests of shareholders.
“The Board of Directors and the General Director always say that ABBank's goal is to focus on customers. But we should also care about the interests of shareholders, not just customers. Will our dividend plan for the next 5 years be in shares or cash? Although we know that we still have to continue to increase our charter capital, we still hope that the bank will pay attention to paying dividends to shareholders,” said an ABBank shareholder.
Mr. Dao Manh Khang, Chairman of the Board of Directors, said that ABBank needs to accumulate bank profits in the next 3-5 years to increase equity, so that it can issue additional shares to increase new capital when necessary.
ABBank Chairman convinced shareholders that retaining profits is to "reserve resources for long-term investment in people, technology systems and data".
“We are still stuck in the middle: if we don’t make a profit, we can’t increase wages. If we don’t increase wages, we can’t attract good people. But if we don’t attract good people, how can we make high profits?”, Mr. Khang said.
According to the Chairman of ABBank, with the target of capitalization reaching 3 billion USD and profit of 500 million USD in the near future, the bank is ready to pay dividends in cash. But that is a story in the future, the bank will not pay dividends in cash in the next 3-5 years.
“We recommend that shareholders be willing to accompany the Board of Directors and the Executive Board. We retain profits to invest in systems, invest in people, and make long-term investments in technology, so that we can have a breakthrough in profits.”
In response to the arguments of ABBank's Chairman, some small shareholders also expressed their support for the direction of technology investment, team building, and talent attraction for the long-term development of the bank.
According to economist Dr. Huynh The Du, cash dividends have some advantages, especially in controlling “agency costs”. In principle, the higher this cost, the more cash dividends should be paid. However, there are some problems here.
First, it is difficult to determine what is considered high “agency cost” (where is the cut-off/switch-off/stop point?). Normally, “agency cost” decreases over time with the development of the business and the market. In that case, the argument that the earlier the stage, the more demanding to pay cash dividends to reduce agency cost will not be reasonable.
Second, it is difficult to find solutions that force businesses to pay cash dividends, especially in developing markets.
Third, paying dividends in cash will create a tax burden for shareholders, especially investors who want to accumulate value for the future.
Fourth, new capital mobilization costs arise when businesses need to develop.
"Therefore, the benefits of controlling the principal-agent problem through paying cash dividends seem to be less than the lost benefits/increased costs. As a result, the market has, in fact, operated and grouped businesses naturally. Four decades ago, 95% of businesses in the world paid cash dividends when they had excess cash flow, but now this method is only 33%, the remaining 67% buy back shares," said Dr. Huynh The Du.
He also noted that many companies do not pay dividends, especially during growth periods. Given this reality, shareholders should be concerned with the stock's yield. Companies pay cash dividends when they do not have the opportunity to reinvest to generate high returns for shareholders.
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