Favourable time for banks to attract foreign capital

10-Jul-2020 Intellasia | Thoi bao Ngan hang | 6:02 AM Print This Post

After a quiet period, recently, some Vietnamese banks are planning to issue international bonds.

For example, HCM City Development Commercial Joint Stock Bank (HDBank) submitted to shareholders for approval of the plan to issue up to one billion US dollars of bonds to the international market for investors outside the US under the euro Medium Term Note programme, and list on the Stock exchange of Singapore. These are non-convertible bonds with no secured assets and no warrants.

Nguyen Thi Phuong Thao, vice Chairwoman of HDBank said that the bank’s total assets are now over 10 billion US dollars and its equity is over one billion US dollars. “the decision to issue international bonds at this time is proposed because countries are in the process of providing economic support when they face the Covid-19 pandemic. They have pumped huge amount of capital to the market with low interest rates or even no interest rates, creating abundant capital in the international capital market. This is a good time to make issuance for attracting long-term capital with good interest rates in the bank’s long-term plan, supplementing funding sources which are capable of financing projects, especially those with post-Covid recovery purpose,” said Thao.

HDBank is the second bank in the past two years sets an ambition to issue one billion US dollar of international bonds. Previously, in mid-July 2019, Vietnam Prosperity Commercial Joint Stock Bank (VPBank) successfully issued 300 million US dollars of international bonds in the first phase in the plan to issue one billion US dollars of bonds under euro Medium Term Note programme. The bonds are on three to five year-terms, listed in the international market.

The increasing trend of Vietnamese banks issuing international bonds is considered a positive sign showing that Vietnamese banks have sufficient confidence and reputation to persuade the market to raise capital from overseas countries. “This move also helps banks have more internal resources and the ability to expand market as well as affirm the prestige and brand name in the international market and step by step penetrate in fastidious markets,” said an expert.

Not only suitable in terms of trend, the issuance of international bonds at this time has more advantages and low costs compared to last year. Strategic director of PetroVietnam Securities Incorporation (PSI) LE Duc Khanh said that international organisations all highly appreciate Vietnam as one of the countries with good disease control and ability to maintain the growth momentum while many large economies in the world are still experiencing negative growth. In addition, Vietnam is an attractive investment destination for “eagles” from big trade agreements such as EVFTA, etc. On that basis, an international organisation highly valued the strong recovery of the Vietnamese economy in 2021.

When the economy receives positive valuation, the banking system will surely benefit. Recently, Moody’s has maintained the B1 rating with stable outlook for four Vietnamese banks. Meanwhile, many banks in countries around the world have been downgraded in terms of prospects as well as credit ratings. The fact that the banking system maintains its credit rating at a high level of stability and stability is a plus for banks that want to mobilise international capital. For the case of HDBank, in April 2020, Moody’s kept the B1 credit rating unchanged for HDBank. That reflects the bank’s good financial capacity, less financial risks and long-term development opportunity of the bank. The level of professionalism of Vietnamese banks is also being highly valued by foreign investors, seen through the transparent disclosure of financial statements, long-term business strategy and efficient investment, risk management and improvement of operating capacity.

Another advantage for the bond issuance at this time, according to Dr Vo Tri Thanh member of the National Financial and Monetary Policy Advisory Council, is the depreciation of the US dollar and the maintenance of low interest rates. Accordingly, the bond interest rates of banks making issuance this year may be around 6.25 percent per annum, like the interest rate that VPBank offered in 2019 or may be lower because the interest rate level is following a downtrend. However, if adding other costs such as exchange rate difference of about one to 1.5 percent the interest rate level that banks pay is only equivalent to the domestic long-term deposit interest rate of about seven to eight percent per annum.

In terms of prices, with interest rates being around the current level, it is possible that the capital mobilised from international sources is not cheap compared to issuing domestic bonds. However, in the current context, banks are in need of increasing the scale of capital, especially medium and long-term capital to serve the post-Covid period. Not to mention that the mobilisation of long-term and stable foreign currency via international bond issuance helps balance capital sources for the medium and long-term foreign currency credit which was disbursed or committed with customers. The issuance of international bonds provides a basis for banks to build and comply with financial standards and capital adequacy, enhancing the position in the international market.

In terms of opportunity cost, it may still be a good price for banks.

According to Le Duc Khanh, the risk has been reduced significantly compared to the previous time. Considering capital supply and demand, since banks, especially large banks, are waiting for the rebound of credit when the economy recovers, it is necessary to have available reserve capital to meet the needs of the economy. Therefore, mobilising international bonds with such interest rates is fairly good for banks.

Certainly, although the time is fairly favourable, it does not mean that any banks issuing international bonds will succeed. Southeast Asia Commercial Joint Stock Bank (SeABank) had to postpone its plan to issue international bonds in 2019 to 2020. By this time, the bank has not released any new information about this plan.

As mentioned above, when using international capital, banks are under the pressure to use capital more effectively when bearing the costs of exchange rate risks and other costs (if any). In fact, in the context of the unstable world economy, the ambiguous US-China trade war, the unpredictability of the US dollar, etc. the future risks for these loans is not small. Thus, banks should consider the volume of issuance, time, and the target to carry out appropriate international bond issuances, ensuring efficiency without creating big risks for the future.


Category: Finance, Vietnam

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