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Vietnamese banks issue bonds galore as credit demand rises

Thursday, 22/11/2018 GMT+7

Credit safety rules are pushing banks to issue bonds en masse to raise their liquidity ratios, experts say.

BIDV, Vietnam's biggest bank by assets, has approved the issuance of 400,000 bonds to raise VND4 trillion ($170.5 million), of which VND3 trillion ($127.88 million) are in 7-year bonds and VND1 trillion ($42.62 million) in 10-year bonds.  

Previously, the State Bank of Vietnam had allowed BIDV to issue a maximum of VND20 trillion ($852.59 million) worth of bonds this year. 

Similarly, Vietcombank, the third largest bank in the country by assets, has successfully raised VND550 billion (23.44 million) through the issuance of individual bonds at VND100,000 ($4.26) per bond. The bonds mature in six years, and carry a 7.4-percent annual interest rate. 

Among many other banks that have raised capital through bonds in 2018 is VietinBank, which has successfully completed a second bond issue this year, raising VND450 billion ($19.18 million) from 2-year bonds with fixed 6-percent interest. 

Last July, VietinBank, the country’s second largest lender by assets, raised VND2.44 trillion ($103.82 million) through 10-year floating interest bonds. 

Economist Nguyen Tri Hieu told VnExpress International that a main reason for the bond issue rush is that banks have to balance and restructure their capital to comply with regulations on credit safety limits.

One regulation requires that banks restrict the use of short-term funds used for medium- and long-term loans to 40 percent in 2019 from 45 percent in 2018, he said.

Furthermore, as capital mobilisation has lagged behind credit growth from the beginning of this year, banks are pressurized into issuing a large amount of bonds to supplement capital reserves.

Hieu also said the recent issuance of bonds may boost interest rates.

If bonds at higher interest rates start becoming more attractive than short-term savings, banks will have to hike up deposit rates to raise their own capital, which is often passed onto businesses via increased lending rates, Hieu said.

Interest rates for bonds offered by banks are, on average, 0.8 percentage points higher than those for deposits.

Nguyen Hoang Minh, deputy director of the Ho Chi Minh City branch of the State Bank of Vietnam (SBV), told local media recently that the liquidity of commercial banks in the locality was stable and not under pressure. 

Vietnam’s credit growth in the first nine months of this year was 9.52 percent.

The country’s banking sector posted an estimated 18.17 percent credit growth in 2017, according to the SBV. It has targeted a credit growth of 17 percent this year.


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