The attractiveness of banks’ bonds

15-Jun-2021 Intellasia | Thoi bao Ngan hang | 6:55 AM Print This Post

According to the Vietnam Bond Market Association (VBMA), from May until now, among the groups of businesses issuing bonds in the domestic, the banking group takes the lead with total issuance value of 18.485 trillion dong. With the solution of issuing bonds to help banks increase the size of their working capital as well as ensure the compliance with the capital safety ratio, the mobilisation of capital through bond channel has been planned and implemented by many banks since the beginning of the year with fairly attractive interest rates.

Increasing the issuance of bonds with good interest rates.

Some banks in the Big4 group are maintaining low savings interest rates but having attractive interest rate policy for bonds. Typically, from the beginning of the year until now, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) has completed two bond private placements. In the first placement, the bank issued 1,500 bonds with terms of eight years, par value of one billion dong per bond and interest rate of nearly 6.5 percent per annum to domestic organisation. In the second placement, 85 15-year bonds were issued at par value of one billion dong and interest rate of 6.7 percent per annum (interest paid annually) to a domestic organisation.

Private joint stock banks are also following this trend. In May alone, many issuance of bonds worth trillions of dong were successful. Most recently, Asia Commercial Joint Stock Bank (ACB) has announced the bond private placement worth two trillion dong to two domestic securities companies. These bonds have a term of three years, interest paid annually at the rate of four percent per annum.

Vietnam Prosperity Commercial Joint Stock Bank (VPBank) also conducted three issuances in May for 500 billion dong of three-year bonds. Tien Phong Commercial Joint Stock Bank (TPBank) are implementing three bond issuances with a term of three years, total value of 2.6 trillion dong and interest rates of 3.8 4.1 percent per annum. Saigon Hanoi Commercial Joint Stock Bank (SHB) also issued one trillion dong of two-year bonds at a fixed interest rate of 3.8 percent per annum to two domestic securities companies.

The advantage of bank bonds is that customers not only receive good interest rates but also enjoy many other benefits. For example, when the bond price increases, customers who own bank bonds have the right to transfer, sell, give, inherit or mortgage at any other bank when there is a need to borrow capital. In addition, bonds of some banks can be used as secured assets for other loans of the bond holders or guaranteeing for the third party. Thus, it is clear that the flexibility of bank bonds is very high.

Safe from financial risks

After the recent bond issuance, leader of ACB said that the purpose of the bond issuances from the beginning of the year until now is to increase the size of the bank’s working capital, serving the needs of lending and ensuring the compliance with ratios on capital adequacy, including total existing assets, charter capital, the ratio of short-term funds used for medium and long-term lending and the ratio of lending to deposits.

Meanwhile, some bank leaders also said that the capital mobilised from bonds will be used to increase the size of operating capital to increase credit for corporate and individual customers.

Giving an overview on bank bonds, economic expert Dr Nguyen Tri Hieu said that the issuance of bonds helps banks be proactive in capital source and improve the capital adequacy ratio. The types of bonds bringing the highest capital adequacy ratio for banks are bonds with terms of over five years and convertible bonds. These bonds are included in the bank’s Tier-2 capital.

According to the Vietnam Bond Market Association (VBMA), from May until now, among the groups of businesses issuing bonds in the domestic, the banking group takes the lead with total issuance value of 18.485 trillion dong, followed by real estate companies with total issuance value of 4.950 trillion dong. Thus, in the first two months of the second quarter of 2021, commercial banks issued a total of 33.674 trillion dong.

The need to issue additional bank bonds for people and banks both benefit will still be maintained in the near future, because according to VietinBank’s analysis report, the need to issue bonds of commercial banks this year will rise, particularly the bonds that help banks supplement Tier-2 capital, increase the proportion of medium and long-term capital source, and enhance the capital adequacy ratio to meet Basel II standards.

There are some opinions that although the issuance quantity is high, banks’ bond interest rates are currently lower than corporate bonds’, especially bonds of real estate companies. Many experts assessed that compared to corporate bonds of other industries, bank bonds are rated as having the highest safety because of their high liquidity, and banks operate under the strict supervision of the SBV. Meanwhile, although real estate bonds offer three to four times higher interest rates, it is still difficult for investors to control the use of money of the issuers of these bonds.

Sharing similar point of view, economist Dr Nguyen Tri Hieu warned that investors should be cautious with high-interest bonds because the higher the rate of return, the higher the risks. Investors should carefully look at the financial situation of the business, the liquidity of the product. It will be very difficult to claim the money back when the issuer is unable to repay the debt.

 

Category: Finance, Vietnam

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