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Credit institutions ranked first in terms of bond issuance. Photo: Internet

Banks pile into issue bonds

From mid-November, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) has announced the results of five private placements, worth VND2,800 billion, of seven-year and 10-year bonds with fixed or floating interest rates. According to the Vietcombank’s report, they are non-convertible bonds without covered warrants and collateral assets. The bank’s bonds have been held by domestic investors, namely securities companies and insurance companies, rather than by foreign investors. Vietcombank will issue a maximum of USD4,000 billion privately issued bonds.

The Joint Stock Commercial Bank for Investment and Development of Vietnam has issued nearly VND 18,800 billion worth of bonds in the first nine months of the year. In the third quarter alone, BIDV issued VND11,500 billion, leading the banking sector in terms of bond issuance. Recently, In October, BIDV issued VND1,200 billion of 8 year-bonds with the right to buy-back after 3 years. This is a non-convertible bond, without covered warrants and collateral assets.100% of this bond value is repurchased by a domestic institutional investor.

This is not just State-owned banks, the private banking sector also actively promotes bond issuance.

In October, The Saigon - Hanoi Commercial Joint Stock Bank (SHB) ranked first when issuing four private placements, with a total value of VND2,050 billion in bonds. Their bonds have an interest rate of 4.2% per year.

The Vietnam International Commercial Joint Stock Bank (VIB) issued two bond issuances, worth VND1,850 billion, with interest rates at 3.8% per year.

Sacombank has also announced the completion of 5,000 bonds, equivalent to VND5,000 billion, with the private placement method for professional securities investors. The bonds of the three banks are also non-bond convertible, without covered warrants and collateral assets.

“Internal game”

According to banks, the aggressive bond issuance is due to the demand for tier-2 capital increase, to supplement capital for operation and meet the banks' medium and long-term lending needs. Banking and finance expert, Dr. Nguyen Tri Hieu, said, “from 2020, the application of extending and delaying repayment of loans to support pandemic-hit- customers according to Circulars 01 and 03 of the State Bank (SBV) has reduced revenue of banks from loan repayment, so banks have to boost private placement of bonds. Moreover, banks are always in need of capital increase, when most of the equity is still low and credit soars in response to the demand for economic recovery, this will affect the capital adequacy ratio (CAR), so banks must strengthen this ratio when meeting Basel II standards.”

The good news is that if the corporate bonds issued by real estate companies have concerns of huge issue volume with small equity, or of many loss-making enterprises, then the banks’ bonds are better. Between January and September, 27 banks listed on the stock market recorded positive growth, 18 banks reported large profits of over VND1,000 billion, and the total assets of the banks are also continuously rising. In addition, bank bonds often have a much lower interest rate than corporate bonds, usually from 3-7% per year compared to over 10% per year for many other corporate bonds.

Therefore, although most bank bonds are also non-bond convertible, without covered warrants and collateral assets, they are always more attractive and are "sold out" at each issuance. The individual investors do not have the opportunity to buy these bonds, because this is mainly an internal "game". Accordingly, banks often cross-sell bonds to each other directly or indirectly through securities companies, or bank bonds are sold to some other financial institutions such as securities companies and insurance companies, etc.

The report on corporate bonds, published by FiinRatings in early November, said, “this show excess liquidity of the interbank system, banks have the demand for the tier-2 capital increase to allocate medium and long-term capital capacity to finance debt restructuring due to Covid-19, as well as improve the ratio of short-term capital for medium and long-term loans according to current regulations of the State Bank”.

However, according to some experts, this solution will make the medium and long-term capital scale of some credit institutions impractical. Moreover, this also causes cash flow to "circle" in the financial system, and not to go into production and business, as required by the Government.