Corporate bonds compete with banking deposits

06:04 | 23/09/2020 Economy

(VEN) - Corporate bond issuance increased by 50 percent in the first half of the year compared to a year ago, competing most directly with banking deposits.

corporate bonds compete with banking deposits

Corporate bonds are highly attractive to investors because they offer higher interest rates than banks

Attraction for investors

According to the SSI Securities Corporation, corporate bond issuance in the first half of the year reached about VND159 trillion, an increase of 50 percent compared to a year ago. Individual investors bought about VND22.7 trillion, equal to nearly 15 percent of total issuance.

Corporate bonds held by non-credit institutions and individuals amounted to VND385 trillion as of June, equal to about 4.2 percent of total banking deposits.

In addition to strong growth in the primary market, the secondary market has also been busy. Corporate bonds are absorbing a considerable amount of capital from other investment channels, especially savings, as they offer higher interest rates than banks. The rates range from 10.1-11.2 percent for bonds with maturity ranging from 12 months to five years, 1.8-4 percentage points higher than deposit interest rates offered by major banks.

Investors are able to buy corporate bonds easily through their stock trading accounts and bank accounts.

Caution advised

Economist Nguyen Tri Hieu said corporate bonds are now highly attractive to investors as companies offer annual yield rates that are higher than banks’ saving rates. However, investors must be careful with high-interest bond issuers because high risks will come along.

No independent intermediary unit currently rates the creditability of corporate bond issuers while self-assessment is beyond the capacity of unprofessional investors. Therefore, they need to learn about the capacity of intermediary distributors in implementing commitments to buying back bonds before their maturity dates and the fees to be incurred.

Experts recommend that corporate bond investors keep up-to-date with information and careful risk assessments. Before making decisions, they should ask the issuing company and the distribution unit to provide full and accurate information about their purposes, guarantees and financial capacities.

The Ministry of Finance has also issued warnings about the potential risks of investing in bonds, advising investors not to purchase bonds just because of high interest rates. In addition, the Ministry of Finance has asked issuers to make sure they are sufficiently financially healthy to pay back debts. Companies must also be committed to the deals signed with investors, especially individual ones.

The ministry has recommended that investors get access to the evaluation reports by financial firms before buying corporate bonds to understand the target and financial status of the bond issuer as well as the chances and risks of the bond deal. Underwriters and distributors are asked not to sell corporate bonds at all cost and to practice responsibility for providing accurate, transparent information of the bond issuer and the issuance to protect investors.

The Ministry of Finance will cooperate with authorities to inspect, supervise and handle violations of private corporate bond issuance in compliance with regulations on handling administrative violations in securities, securities market and other relevant regulations.

Thanh Thanh