Many banks are pouring strong capital into corporate bonds when bond interest rates are more attractive than deposit rates. However, corporate bonds are also investment activities that can cause high risks to banks, so they are gradually tightened.
The recent announcement of Hanoi Stock Exchange (HNX) stated that Nha Trang Bay Investment and Construction JSC successfully issued 650 billion dong of private bonds and the only investor to buy all of these bonds was Vietnam Maritime JointStock Commercial Bank (MSB).
Bonds issued by Nha Trang Bay Company are non-convertible bonds with secured assets, with par value of 1 billion dong per bond. Bonds have a 10-year term with interest rate applied in fixed interest rate method combined with floating method. Specifically, for the first four periods, the applicable interest rate is 10 percent per year. Interest rates for subsequent interest periods are determined by the 12-month term deposit interest rate at MSB plus a margin of 3.5 percent per year.
At Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), the bank has just bought a total of 925 billion dong worth of bonds issued by Hoang Truong Tourism Real Estate Investment Company Limited. This type of bond is non-convertible, has security assets and is not a secondary debt of the enterprise. The par value is 1 billion dong per bond.
The bond has a term of five years. The interest rate in the first period is 9.5 percent per year. The next interest rate periods are determined by the 12-month term deposit interest rate at VPBank plus the margin of three percent per year. Collateral for the above bonds includes stocks and other assets (real estate and movable assets) that Hoang Truong Company or/and any third party use it as collateral or replacement of collateral.
VPBank is one of the banks that strongly invested in corporate bonds recently. By the end of March 2019, VPBank had nearly 15 trillion dong of bonds issued by domestic economic organisations, an increase of 69 percent compared to the end of 2018.
Dinh The Hien, finance and banking expert, said that many banks invested heavily in corporate bonds, because corporate bond interest rates are significantly higher, popular from 13 percent to 14 percent per year. Meanwhile, savings interest rates are only four percent to 5.5 percent per year for short terms and eight percent to 8.9 percent per year for long terms.
While the demand for capital mobilisation of enterprises increased and the credit growth limit of banks was limited, it was understandable that the bank injected strong capital into corporate bonds to utilise high interest rate.
However, that activity was gradually tightening when the State Bank of Vietnam (SBV) consulted for the Draft Circular to replace Circular 36/2014/TT-NHNN prescribing safety limits and ratios in the operations of foreign banks and bank branches, including content related to the limitation and restriction of credit granting for the areas of high risk potential, namely investment and trading in corporate bonds.
That caused concerns that banks might take advantage of buying corporate bonds issued to restructure their debts, which might cause risks to the banking system.
When new regulations were issued, banks would face major barriers in corporate bond investment. That was also the reason why bond issuers were gradually shifting to individual investors.
