SSI Securities analyst has just reported the impact of corporate bond channel on deposit interest rates. SSI said that according to the published business data and Hanoi Stock Exchange (HNX), the total amount of corporate bonds issued by the beginning of the year to date was estimated at 159 trillion dong, up 50 percent compared to the first six months of 2019. The number of growth in the issuance scale in the first six months of 2020 compared to the same period may be higher because the information is still released.
The total amount of circulating corporate bonds was estimated at 783 trillion dong, equivalent to 12.8 percent of the accumulated GDP of the last 12 months. The size of Vietnam’s corporate bond market grows on average 45 percent per year from 2017 to June 2020.
Not only strongly growing in the primary market, corporate bonds is also much more active in the secondary market. The number of corporate bonds listed on the HSX has increased from 14.2 trillion dong in 2017 to nearly 36 trillion dong as of June 30, 2020, equivalent to the average growth rate of 45 percent per year. The market liquidity is improving with the average trading value increasing by 80 percent per year from 2017 up to now but still at a modest level, about 3.2 trillion dong per month on average.
Transactions through agents including securities companies and banks still accounted for the majority. Not only acting as an intermediary for distribution, corporate bond investment funds significantly increased in the number of new openings and in assets managed (TCBF, VTBF, BVBF, VNFVFB, VCBF-FIF, etc.).
The strong growth in terms of scale, liquidity and accessibility has gradually changed corporate bonds from an institutional investment channel to a new investment option for individual customers.
In the annual report of TCBS, the company accounted for 82.4 percent of the market share of corporate bond trading on the HSX, said it had sold to individual investors in the market more than 30 trillion dong in 2019, an increase of 47 percent compared to 2018.
SSI estimates that the amount of corporate bonds that individual investors buy in 2019 on both secondary and primary is about 66 trillion dong, equivalent to 1.4 percent of the total residential deposit in the banking system. Although being small, the level of participation of individual investors in the corporate bond market is increasing rapidly.
Since the beginning of 2020, individual investors have directly purchased nearly 22.7 trillion dong of corporate bonds in the primary market, accounting for 15 percent of the total issuance, higher than the average of nearly 10 percent in 2019. Bonds of businesses issued in the first half of 2020 such as Sovico, Vinfast, Vincommerce, and Masan Group are strongly distributed to individual customers in the secondary market.
Individual investors should be cautious
The interest rate of corporate bonds is much higher than that of deposits which has a strong attraction to investors. However, profits often come with risks, bond ownership means that investors become creditors of issuing organisations and will face the risk of insolvency and illiquidity of businesses.
According to SSI, at present, there is not an independent intermediary unit rating corporate bonds, the self-assessment of bonds is beyond the ability of individual investors. Therefore, investors need to learn carefully about the capacity of the intermediary distribution organisation in fulfilling its commitment to repurchase before maturity with additional fees charged. In many cases, the fee can erode the gap with deposit rates.
Recently, commercial banks simultaneously reduced their deposit rates from 10-90bps depending on each term from July 1, 2020, recording the strongest interest rate reduction from the end of 2019 up to now. This interest rate has been 0.75 percent 1 percent lower for terms of less than six months and 1 percent 2 percent lower for terms of six months or more compared to the end of 2019, which loosened the gap with interest rates of corporate bonds.
SSI said that the recent sharp increase in corporate bond issuance could be an accelerating step before the draft revision of Decree 163 in the direction of tightening individual bonds comes into effect. After two years of acceleration, the number of outstanding corporate bonds in circulation is already quite large and may be one of the factors that make it difficult for deposit rates to decrease much in the second half of 2020.
