Banks rush to issue bonds ahead of capital requirement deadline

Hanoi (VNS/VNA) - Rising medium- and long-term capital demands to meet stricter regulations on credit safety limits and capital adequacy early next year were putting pressure on commercial banks to issue bonds in the final months of the year, experts said.

The latest report from Saigon Securities Incorporation (SSI) released on December 16 showed that banks continued to issue bonds worth nearly 14.15 trillion VND (615.17 million USD) last month, bringing the total in the first eleven months of this year to 94 trillion VND.

The issuance made banks the main player in the corporate bond market in the period, accounting for 45.5 percent of the market’s total bond value.

In November, BIDV was among the largest bond issuers with 8.6 trillion VND. The bank issued bonds worth a total of nearly 12.82 trillion VND in the first eleven months with terms from six to ten years and variable rates to increase long-term capital.

MBBank also successfully issued 80 billion VND in bonds with a ten-year term last month.

Other big issuers in the month included VPBank, VIB, SHB, HDBank and SeA Bank, but with shorter terms of two to three years and fixed interest rates of 6.3-7 percent per year.

According to experts, banks have continued issuing a large amount of bonds to raise capital to meet the State Bank of Vietnam (SBV)’s strict regulations on credit safety limits and capital adequacy.

Banking expert Nguyen Tri Hieu said that banks preferred to issue bonds to raise long-term capital to satisfy the SBV’s regulations on reducing short-term funds earmarked for long-term loans from 45 percent to 40 percent.

“Besides, banks also issue bonds to meet capital adequacy ratio (CAR) requirements under the Basel II standards that the SBV wants them to comply with by January 1 next year,” Hieu added.

Especially, Hieu said, for State-owned banks like BIDV and VietinBank, increasing capital is one of their most urgent tasks at the moment, because if they cannot do so before 2020, their CAR will fall below the minimum level of 8 percent stipulated by the Basel II norms – a set of laws and regulations to enhance competition and transparency in the banking system and make banks more resistant to market changes.

"Raising capital has not been easy as the banks are struggling to find foreign investors while the National Assembly in a meeting last month decided to reject a proposal to use the State budget to raise charter capital for the banks, so they are rushing to issue bonds," he explained.

Experts also forecast that capital mobilisation via bond issuance would continue growing in popularity.

The SSI report showed besides banks, real estate firms were also big bond issuers in November with 6.95 trillion VND. Total bond issuance of those firms was valued at 71.31 trillion VND in the past eleven months, accounting for 34.5 percent of the total market.

The biggest bond issuance of real estate firms this year belonged to Tan Lien Phat Tan Cang Logistics and Real Estate Company, valued at 2.03 trillion VND with a term of one year.

According to the SSI report, the total value of the entire corporate bond market was 24.20 trillion VND in November, bringing the total bond issuance value from January-November to 237 trillion VND. The value was 5.8 percent higher than the entire 2018.

Bond terms this year averaged at 3.71 years and bonds from infrastructure developers had the longest term of 5.14 years.

The bond yield rate this year averaged 8.7 percent per year while bonds from real estate firms had the highest rate of 10.24 percent.

Foreign investors purchased some 7 percent of the total bond issued in the past eleven months, valued at nearly 14 trillion VND./.