The latest updates until June 29 from The State Bank of Vietnam (SBV), the credit growth of the whole banking industry was only at 3.26 percent compared to the beginning of the year, a sharp decrease compared to the increase of 5,7 percent in the first six months of 2019.
The influence of the Covid-19 pandemic caused a number of businesses to be in difficult situations, to contract their production scale so that the demand for loans decreased, whereby the lending activities of banks were sluggish.
In a different direction, the slow credit growth also comes from the fact that banks have become more cautious when making new disbursements to reduce credit risk in the future.
Meanwhile, the market two has no longer beheld the strong and unusual fluctuations of interest rates in dong in the first three months of the year. Instead, abundant liquidity led to continuous interbank interest rate falls from mid-March up to now, currently at a new record low of 0.19 percent for the overnight, 0.23 percent for one-week term; 0.32 percent for two-week term and 0.58 percent for one-month term.
Situation of abundant capital with low credit demand has forced a number of banks to adjust business plans, diversify investment channels to maximise capital efficiency. One of them is the bond investment channel.
A survey of BizLIVE at various commercial banks has released the financial statements for the second quarter of 2020 showing that bond investment is one of the prominent movements in Vietnamese banking activities in the first six months of 2020.
Although bonds are a familiar channel, expanding the cash flow and increasing capital on this channel is a new trend that shows updates in the last few years.
Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) is an example. Available-for-sale investment securities in the newly released report show that Vietcombank is holding more than 18 trillion dong of debt securities issued by other credit institutions. While held-to-maturity securities also had 45.569 trillion dong of debt securities issued by other credit institutions. Accordingly, the total bond amount of other credit institutions that Vietcombank is holding stays at 63.575 trillion dong, increasing by 4.5 percent compared to the beginning of the year and accounting for 5.36 percent of total bank assets, compared with 4.98 percent at the beginning of the year.
At Military Commercial Joint Stock Bank (MB), although debt securities issued by other credit institutions in the list of available-for-sale investment securities decreased slightly by 10 percent to 20.4 trillion dong, debt securities issued by national economic organisations rose by 82 percent over 22.1 trillion dong.
MB said that bonds issued by other credit institutions had a term of nine months to five years, with interest rates from 5.7 percent to 9.5 percent per year. Meanwhile, bonds issued by economic organisations had terms of one to 14 years with interest rates from eight percent to 11.4 percent per year. Obviously, this interest rate was much more attractive than the rate on the interbank market.
Similarly, at Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), the amount of corporate bonds that the bank bought until June 2020 reached 27.83 trillion dong, nearly doubled compared to the beginning of the year.
The total amount of bonds, including government bonds, credit institution bonds and corporate bonds held by the bank, was over 75.4 trillion dong, up by 9.6 percent compared to the beginning of the year and accounted for 18.9 percent of total bank assets.
Meanwhile, at Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), although the volume of government bonds and credit institutions bonds decreased slightly, the amount of corporate bonds (including available for sale and held to maturity) grew by 27 percent compared to the beginning of the year, currently at 38.87 trillion dong, equivalent to 9.82 percent of total assets, compared with eight percent at the beginning of the year.
Incontrast to other banks, Tien Phong Commercial Joint Stock Bank (TPBank) invested heavily in government bonds with double amount after only six months, reaching 11.3 trillion dong. The amount of corporate bonds of TPBank also increased by 2.2 times to 10.45 trillion dong. The bank’s total available-for-sale securities amounted to over 38 trillion dong by the end of June 2020, a growth of 46.6 percent compared to the beginning of the year.
As mentioned above, when lending in market one and two becomes more difficult, bonds are the preferred investment channel of banks at the moment. Depending on the capital balance and risk appetite, the percentage of capital invested in this channel of each bank will be different. At the same time, the choice of bond’s type and bond’s maturity for investment also has a strong differentiation among banks.
