The bank still issued mass bonds in the context of raising capital to balance short-term, medium and long-term capital, while ensuring capital adequacy ratio. However, the real buyers are banks.
Bond “party” has not yet ended
On September 24, Vietnam Bank for Agriculture and Rural Development (Agribank) issued a total of five million bonds in the public offering in 2019 with a term of seven years. The newly closed interest rate is 8.1 percent per year for the first interest period. This interest rate is affirmed by the bank to be 1.2 percent per year higher than the average interest rate of 12-month individual savings deposits of four major commercial banks including Agribank, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank). In fact, the interest rate of Agribank’s bonds is higher than the one-year rates of state-owned commercial banks which fluctuate in the range of 6.8-7 percent per year, but lower than the rates at non-state banks (the highest one-year term is 8.66 percent per year).
Right in the second and third quarter, a series of banks issued bonds continuously. Most recently, in early September, the Board of directors of Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) approved a bond issuance plan in 2019 with an estimated 10 trillion dong of three-year term. This is considered to be the largest bond issuance in the banking industry since the beginning of this year. In August, the banking group issued 10.303 trillion bonds (accounting for 38.69 percent of the total corporate bonds issued to the market). Not to mention in July, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) also announced information on sending a listing document of $300 million of three-year bonds in the international capital market with a nominal interest rate of 6.25 percent per annum.
According to the separate figures issued on Hanoi Stock Exchange (HNX) and information disclosure of businesses, it was estimated that in the first eight months of this year, the total amount of bonds issued was up to 117.142 trillion dong (with successful issuance rate of 90.8 percent). In particular, the largest issuers were still commercial banks with the amount of 56.06 trillion dong (accounting for 47.9 percent), much higher than the amount of real estate businesses (36.946 trillion dong). The banks were also the group that sold the most expensive bonds when the successful issuance rate reached 99.6 percent, except for Southeast Asia Commercial Joint Stock Bank (SeABank) with two lots issued on May 8 and June 19 with the value of one trillion dong and 0.9 trillion dong which were not sold out. The remaining 10 other commercial banks sold 100 percent as HCM City Development Joint Stock Commercial Bank (HDBank) (11.6 trillion dong); Asia Commercial Joint Stock Bank (ACB) (7.85 trillion dong); Vietnam International Commercial Joint Stock Bank (VIB) (6.45 trillion dong), and en Viet Post Joint Stock Commercial Bank (LienVietPostBank) (6.1 trillion dong).
The question of cross-ownership is coming back to some banks to legalise the meeting of the State Bank of Vietnam (SBV)’s requirements on capital ratio and capital adequacy, to discuss with the Vietnam Transport Newspaper, financial expert Nguyen Tri Hieu said that previously a company issued bonds, the banks bought this bond. The company used that money to buy securities of the banks.
“This happened a lot in the past, so there was a company that could own four to five banks,” Hieu said. But now, thanks to SBV regulation, the mentioned issue is banned.
“However, it is hard to control because Company A establishes direct and indirect subsidiaries, and then issues bonds, banks buy those bonds and businesses use the money to invest in banks. So company A itself has increased its equity in the banks. The tool can still be operated and is beyond the control of the management agency,” said Nguyen Tri Hieu.
In a more direct aspect, banks can buy each other’s bonds through intermediaries, which are securities companies. According to SSI Securities Company, among domestic investors, securities companies are the biggest buyers with total amount of 29.447 trillion dong, of which 22.9 trillion dong of bonds is issued by commercial banks. Notably, this amount is too large compared to the size of capital of securities companies and these securities companies themselves have to mobilise bonds to increase capital, so SSI thinks that it is likely that securities companies are only intermediaries, participating in buying in primary market for resale in secondary market rather than final buyers.
After questioning that commercial banks are cross-buying each other’s bonds, SSI cites data from the semi-annual financial statements of 18 listed banks. This data showed that, in the first six months of this year, the amount of bonds held by credit institutions that commercial banks held increased by 56.4 trillion dong. This figure is quite similar to the amount of bonds that banks have issued. Even the average interest rate is only around 6.72 percent per year, which is equivalent to the deposit rates of major commercial banks. This is an unattractive interest rate for ordinary investors because interest rates for bank deposits for six-month to one-year term are also higher than this interest rate.
“In addition, the main buyers are securities companies, so it is likely that commercial banks have cross-owned each other’s bonds, the purpose is to increase the mobilisation and increase the proportion of capital of medium and long-term, dealing with the requirement of reducing the proportion of short-term capital for medium and long-term loans of SBV”, said SSI.
