Banks rush to issue bonds for long-term capital hike

Illustrative image - Source: VNA

Last week alone saw the Asia Commercial Joint Stock Bank (ACB) and the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) announce bond issue plans worth up to 15.5 trillion VND (665 million USD).

ACB’s board of directors approved a plan to issue two-year and three-year bonds worth 5.5 trillion VND, with a maximum interest rate of 6.75 percent.

ACB said the money raised from this issuance would be used to increase the bank’s working capital to satisfy rising credit demand.

In April, ACB also approved the first private placement in 2019 with total face value of 2.5 trillion VND.

According to the audited financial statement, by the end of March, the bond value issued by ACB was more than 7.96 trillion VND.

Meanwhile, VietinBank last week also received the SBV’s approval to issue 10 trillion VND worth of bonds.

Over the past year, VietinBank has issued bonds to maintain and raise its capital adequacy ratio (CAR), which is currently at the minimum level prescribed by law. The bank raised 450 billion VND last year through bonds.

By the end of the first quarter, VietinBank's valuable papers totalled 46.2 trillion VND, equivalent to the beginning of the year, of which 32.2 trillion VND was in bonds.

Earlier, the Ho Chi Minh City Housing Development Joint Stock Commercial Bank (HDBank) became the first bank in the country this year to raise 2.5 trillion VND from two-year and three-year bonds at interest rates of 6.3-7 percent.

According to banking expert Nguyen Tri Hieu, banks prefer to issue bonds to raise long-term capital to satisfy the SBV’s regulation on reducing short-term funds earmarked for long-term loans from 45 percent to 40 percent.

Banks also issue bonds to meet capital adequacy ratio (CAR) requirements under the Basel II standards that the SBV wants them to be operating by next year, he said.

For State-owned banks like Vietcombank, VietinBank and BIDV, increasing capital is one of their most urgent tasks at the moment, because if they cannot do so before 2020, their CAR will fall below the minimum level of 8 percent stipulated by the Basel II norms – a set of banking laws and regulations to enhance competition and transparency in the banking system and make banks more resistant to market changes.

However, raising capital has not been easy as the banks are struggling to find foreign investors while they are not allowed to hold on to dividends to increase capital, so banks have decided to issue bonds.

Experts also forecast the capital mobilisation channel via bond issuance will continue growing in popularity.