From the beginning of the year until now, the market has continuously witnessed the bond issuances of banks to mobilise capital.
Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) has recently announced its successful issuance of 3.1 trillion dong of 10-year bonds at fixed interest rate of 7.35 percent per annum, under private placement.
These are non-convertible bonds with secured assets and no warrant.
Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) in late May was also approved by the State Bank of Vietnam (SBV) to issue bonds to the public in 2019 with a total face value of 10 trillion dong. The bond interest rates are decided by VietinBank but must comply with the provisions of law, ensuring business efficiency and banking safety.
In July and August, VietinBank will carry out the first private placement in the year with an issuance volume of 50 billion dong on a term of 15 years. The face value is one billion dong and interest rate is fixed at 8.2 percent per annum. These are non-convertible bonds, not secured by the issuer’s assets. These bonds satisfy the conditions to be counted into VietinBank’s Tier-2 capital.
HCM City Development Commercial Joint Stock Bank (HDBank) has just approved the plan to issue bonds of HDBank for the third time in 2019 with a total par value of three trillion dong to raise capital.
Previously, HDBank completed the first bond issuance in 2019 with a total value of five trillion dong through five phases.
On May 8th, the bank approved the second bond issuance plan in 2019 with a total value of two trillion dong.
Thus, if successfully issuing all the expected bonds, HDBank will be able to mobilise about one trillion dong.
In early April this year, the Board of directors (BOD) of Asia Commercial Joint Stock Bank (ACB) approved the plan to carry out a private placement for the first time in 2019 with 2,500 bonds, face value of one billion dong per bond, equivalent a total issuance value of 2.5 trillion dong.
By the end of May, the bank continued to plan a private placement for the second time with a total value of 5.5 trillion dong and terms of two to three years.
Previously, in 2018, many banks issued bonds to raise capital. Six banks including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Vietnam International Commercial Joint Stock Bank (VIB), HDBank, Vietnam Prosperity Commercial Joint Stock Bank (VPBank), and VietinBank alone recorded a total issuance value of up to 32 trillion dong with various terms from two years to 15 years.
Looking back on the developments of the capital market in 2018 and early 2019, it can be seen that the bond issuance acceleration of banks is closely related to the new regulations of the SBV.
Normally, long-term loans are more attractive to banks because this helps them get higher profit margin. On the other hand, most banks have been boosting retail lending, in which the proportion of individual loans to buy house and cars (on long terms) has been pushed up.
Survey of BizLIVE in 20 banks pointed out that by the end of the first quarter of 2019, the average proportion of medium and long-term loans of these banks reached 54.68 percent. Particularly, this rate was above 80 percent in some banks.
However, according to the draft circular replacing Circular 36/2014/TT-NHNN recently announced by the SBV, at the latest by July 2022, the maximum ratio of using short-term funds for medium and long-term lending must be reduced to 30 percent. Although it is just a draft circular, and the limit is still high at 40 percent under the current regulation, banks in fact have to actively prepared capital source for long-term lending by issuing bonds as mentioned in the above.
More importantly, for some banks, the issuance of bonds is also to supplement Tier-2 capital to ensure the minimum capital adequacy ratio (CAR) when applying the Basel II. Compared to the increase of Tier-1 capital (banks’ equity), raising Tier-2 capital by issuing bonds is considered as quicker and easier to carry out, although interest rate is a point that draws attention.
On the other hand, for banks with abundant capital, instead of traditionally lending on the interbank market, investing in the bonds of other banks is becoming more and more attractive thanks to the higher profit margin. This is a notable shift in the Vietnam’s banking activities from the end of 2018 until now.
Vietcombank is a good example. According to the recently announced financial statement, the bank has boosted investment in bonds of other credit institutions (CIs) for the past six months. Specifically, in the portfolio of investment securities available-for-sale, the bank purchased an addition of seven trillion dong securities issued by other CIs, equivalent to an increase of 52.8 percent compared to the beginning of the year.
Similarly, in the portfolio of held-to-maturity securities, the securities issued by other CIs also increased by 64 percent to over 37.6 trillion dong.
At Military Commercial Joint Stock Bank (MB), the securities issued by other CIs in the portfolio of available-for-sale securities in the last six months also rose up by nearly 6.5 trillion dong, equivalent to 31 percent, reaching nearly 27.4 trillion dong.
MB said that these are bonds with terms from six months to five years, and interest rates from 5.3 percent to 9.3 percent per annum. Obviously, these interest rate levels are much more attractive than the three to four percent per annum interest rate if lending on the interbank market.
Thanks to the abundant capital source, the investment in other banks’ bonds is more meaningful for these banks, in the context when the credit growth has been limited in the recent years, because investing in other banks’ bonds is not be counted into credit. Accordingly, that helps banks “unfreeze” their idle money while still complying with the prescribed limits.
