According to MB Securities Company (MBS), in the first six months of 2019, there were 70 trillion dong of corporate bonds issued. In particular, the banking sector was currently leading the issuance of bonds with a total of 25.7 trillion dong. Leading the way was Asia Commercial Joint Stock Bank (ACB) when the bank issued 6.85 trillion dong of bonds, with a fixed interest rate of 6.76.8 percent per year, three-year term, and payment of one year per time. Next, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) also issued 5.9 trillion dong of bonds with fixed interest rates from 6.4 percent to 6.9 percent per year. In addition, many other banks have successfully mobilised medium and long-term capital through this channel such as Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank), Southeast Asia Commercial Joint Stock Bank (SeABank), Bac A Commercial Joint Stock Bank (Bac A Bank), Orient Commercial Joint Stock Bank (OCB), HCM City Development Joint Stock Commercial Bank (HDBank), Vietnam International Commercial Joint Stock Bank (VIB), An Binh Commercial Joint Stock Bank (ABBank)… According to MBS, the race of banks to issue bonds is due to the increasing demand for Tier II capital to raise the minimum capital adequacy ratio (CAR) to eight percent in accordance with Circular 41/2016/ TT-NHNN.
Agreeing with this statement, a banking expert also added a reason why banks raced to issue bonds to mobilise medium and long-term capital to prepare in advance so that the ratio of short-term capital to medium and long-term loans can be reduced to 30 percent as proposed by SBV.
Ranked second in terms of bond issuance is real estate, construction and infrastructure with 19.749 trillion dong, accounting for 28.3 percent of total corporate bonds issued earlier this year. Bonds of real estate and construction enterprises often have secured assets in the form of land use rights, with terms ranging from one to ten years, which are commonly two-year term.
This is a group of industries which often have high loan ratio, are looking to other capital mobilisation channels such as corporate bond issuance because in the near future, SBVwill tighten the line of bank credit for real estate loans through regulation intended to reduce the rate of using short-term capital for medium and long-term loans to 30 percent in 2021 and 2022.
“If as before, banks are quite strong in investing in corporate bonds, currently do not dare to do so anymore because according to the current regulations, investment in corporate bonds is also included in the credit balance”, the bank expert added. According to this position, due to the large demand for capital and direct competition with the saving channel, the current mobilising interest rate is also quite high, causing the interest rates of bonds issued by real estate businesses to be pushed up to 11-12 percent per year. Some businesses offer interest rates to 14.5 percent per year, excluding the cost of consulting and underwriting.
Obviously, the fact that businesses race to issue bonds with high interest rates also creates great pressure on interest rates of banks. “Many deposit customers, including many large customers, are attracted by the high bond interest rates offered by businesses. The attraction is even greater with bonds that have a “back” of big banks. This is a significant competitive pressure for banks in capital mobilisation activities. This has forced these banks to raise interest rates to mobilise capital, “said a bank’s leader.
However, the cause of all causes of the mobilising interest rate level is the trend of monetary tightening as well as raising the safety standards of SBV. Obviously, credit tightening, especially medium and long-term credit, will force businesses to find ways to raise capital through bond channels.
According to KB Securities Company, long-term deposit interest rates tend to increase while short-term interest rates are relatively stable. Accordingly, deposit rates decreased slightly for terms of less than 12 months, ranging from 4.1 to 5.5 percent per year for terms of less than six months and 5.5 percent7.45 percent for terms lower than 12 months due to abundance of short-term funds in banks. However, for 12-month and longer terms, there is a mixed adjustment due to dependence on capital balance to meet the requirement of short-term capital ratio for medium and long-term loans. The average deposit rate for 12 and 13 month terms is 6.4 percent8 percent per year.
It is forecasted that short-term deposit rates will not change much, even in the near future, but in KB, with long-term terms of over 12 months, interest rates will continue to increase slightly because banks restructure the capital, especially in the case of the Draft Circular on continuing to reduce the ratio of short-term capital for medium and long-term loans to 35 percent at the beginning of next year, which is approved and effective.
