Banks continue bond issuance to meet capital adequacy ratio

Vietcombank headquarters in Hà Nội. Banks issued bonds worth up to VNĐ10.85 trillion last month, accounting for nearly 42 per cent of the total issued value. VNA/VNS Photo Trần Việt

Banks have been promoting the mobilisation of medium- and long-term capital through bond issuance to meet the State Bank of Vietnam (SBV)’s requirements on capital adequacy ratio (CAR).

According to statistics of the Bond Market Association, banks issued bonds worth up to VNĐ10.85 trillion last month, accounting for nearly 42 per cent of the total issued value.

Notably, many banks such as BIDV, VietinBank, VIB, Military Bank and Viet Capital Bank aggressively issued bonds to increase Tier 2 capital (additional capital) with floating interest rates ranging from 6.1-7.6 per cent per year based on the average reference interest rates for savings of four big banks – Vietcombank, BIDV, VietinBank and Agribank.

Although the interest rates are significantly lower than corporate bonds of other sectors (bonds of real estate companies, for example, often have high interest rates up to 12-13 per cent per year), but bonds of banks have still attracted investors.

Banking and finance expert Nguyễn Trí Hiếu attributed the rise of two- and four-year bank bonds to a temporary shortage of medium- and long-term capital at banks.

Hiếu explained the rescheduling and postponement of debt repayment to support COVID-19-affected borrowers according to Circular 01/2020/TT-NHNN and Circular 03/2021/TT-NHNN had been causing a large amount of debts not to be able to return to banks. Therefore, banks would need to strongly increase bond issuance to compensate for the capital shortage.

Besides, Hiếu said, the bond issuance had also aimed to increase additional capital of banks to strengthen the CAR to meet the SBV’s requirements when the credit growth rate had been tending to increase much faster than that of banks’ equity.

However, information about the issuance from banks showed the bonds’ buyers were other banks and securities companies.

Previously, data from the Saigon Securities Corporation (SSI) also showed up to 82 per cent of bank bonds issued in the first half of this year were sold to other credit institutions and securities companies.

In the latest issuance on September 10, PG Bank successfully issued VNĐ500 billion of bonds with a term of three years and the buyer was another bank.

Previously, in mid-August, BIDV also successfully issued eight-year bonds as a private placement worth VNĐ500 billion. All the bonds were sold to a domestic credit institution.

According to Hiếu, it is easy to understand why bank bonds attracted customers as these kind of bonds have the highest safety rate in the local market thanks to high liquidity while banks operate under the SBV’s strict supervision.

Meanwhile, compared with bonds of real estate companies, which often have interest rates of 3-4 times higher than that of banks’, it will be difficult for investors to control the use of money of the bond issuers.

Experts forecast the demand for issuing bonds of banks in the remaining months of this year would remain high, especially medium- and long-term bonds, to help banks improve the CAR. The bond yields are also predicted to increase as banks often offer higher interest rates to attract depositors in the last quarter of the year when the need for capital is high. — VNS