10:10 | 18/12/2018 Finance - Banking
(VEN) - Banks have issued massive amounts of bonds to improve their capital adequacy ratio (CAR), expand the market and ensure balance of capital sources and interest rate stability.
Capital for medium, long-term projects
The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) is issuing 400,000 bonds to raise VND4 trillion, including VND3 trillion worth of up-to-seven-year bonds and VND1 trillion worth of up-to-10-year bonds. Buyers include Vietnamese and foreign organizations and individuals, but not credit institutions, foreign bank branches and subsidiaries of credit institutions. BIDV will use the mobilized capital to increase its operating capital and satisfy the demand for dong-based loans for medium to long-term projects.
The Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) has recently mobilized more than VND550 billion through issuance of six-year, 7.4-percent-per-year bonds with a face value of VND100,000 each.
The Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) recently mobilized VND450 billion by issuing two-year, six-percent-per-year bonds. In July, VietinBank also raised almost VND2.44 trillion by issuing 10-year bonds.
After its successful bond issue worth a total of VND5 trillion in mid2018, the Ho Chi Minh Development Joint Stock Commercial Bank (HDBank) recently raised an additional VND1 trillion through three-year bonds to increase capital especially its medium to long-term capital sources.
Capital security and interest rate stability
Bond issuance has become one of the fastest and most effective ways for the banks to increase medium and long-term capital sources and implement State Bank of Vietnam Circular 06/2016/TT-NHNN on decreasing the rate of short-term capital used for medium to long-term loans from 60 to 50 percent in 2017 and 40 percent in 2018.
The bond issues are also aimed at attracting capital, improving banks’ CAR, expanding their markets and ensuring the balance of capital sources in the context of mobilized capital growth being lower than credit growth at many banks.
The bond issuance barely affects interest rates. The banks must keep loan interest rates stable and unchanged. If they increase medium to long-term deposit interest rates, they will have to diversify services and minimize expenses to maintain or increase revenues and keep loan interest rates unchanged.