Banks strongly purchase corporate bonds

25-Feb-2021 Intellasia | Dau tu Online | 7:03 AM Print This Post

In 2021, it is expected that banks will still be the biggest players in the corporate bond market.

One of the common points of banks with strong credit growth and profits in 2020 is that the number of corporate bonds holding recorded sharp increases. The financial statements in 2020 of many banks showed that the value of corporate bonds they held doubled, tripled, or even increased by a few dozen times.

Vietnam Technological and Commercial Joint Stock Bank (Techcombank) is the leader in bond investment. As of December 31st 2020, the value of bonds held by this bank was 46.5 trillion dong, up by 53 percent compared to 2019. However, the strongest rise in corporate bond investment was seen in Saigon Hanoi Commercial Joint Stock Bank (SHB). In 2019, the value of corporate bonds held by SHB was only 500 billion dong, but this number rose to more than 10.5 trillion dong in 2020 (an increase of 21 times).

Some other banks also recorded considerable increase in corporate bond investment, such as Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Tien Phong Commercial Joint Stock Bank (TPBank), Military Commercial Joint Stock Bank (MB), etc. The value of corporate bonds of VPBank in 2020 was more than 31.8 trillion dong, up by 124 percent (2.2 times higher than 2019). This number in TPBank was 11.2 trillion dong, up by 138%, equivalent to 2.4 times and 24.8 trillion dong, equivalent to a double increase compared to 2019.

According to Dr Nguyen Tri Hieu, banks’ different moves to do business in the context of the credit decline due to the Covid-19 epidemic shows their agility and flexibility. In fact, although the overall credit of the entire system did not decrease sharply compared to 2019, the interest income grew slowly due to the decrease in lending interest rates and banks focused on restructuring debts. Nevertheless, the expert also warned that the reasons can also be that banks offered rollovers and tried to go around the rules on real estate credit.

Which bank will continue to massively buy bonds in 2021?

In 2020, banks were both the issuers and the largest corporate bond investors in the market. In 2021, it is likely that banks will continue to invest heavily in bonds.

According to Dr Le Xuan Nghia, an economic expert, the Decree 153/2020/ND-CP on private corporate bond offering and trading which took effect in the beginning of the year has eliminated some retail individual investors in the playground for private corporate bond issuance. While waiting for the secondary market, corporate bonds will be the area for professional investors, particularly banks.

In addition, according to Le Xuan Dong, director of Market Research and Consulting Services of FiinResearch, in 2020, many banks benefited from the wholesale purchase of corporate bonds and the resale to individual investors. According to this expert, in 2021, the number of corporate bonds held by banks which own many “related businesses” will still see stable growth. For banks that own less “related businesses”, the increase or decrease of corporate bonds heavily depends on market condition as well as the newly issued policies.

The diversification of the portfolio in the difficult situation for credit growth is not a bad thing. However, the potential downside in banks’ corporate bond investment has made the authorities to tighten it further.

FiinGroup said that, in 2021, the medium and long-term credit of banks is unlikely to have wide room for growth to meet the medium and long-term capital needs of businesses. Therefore, the corporate bond issuance channel will still develop strongly.

Moreover, according to FiinGroup, in 2020, although banks have expanded their corporate bond portfolio instead of promoting long-term lending, the new regulations in the recent time of the State Bank of Vietnam (SBV) have limited this activity. Therefore, the proportion of corporate bond portfolio has tended to decline in recent months.

 

Category: Finance, Vietnam

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