Banks Race To Attract Medium And Long-term Capital

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Many banks have issued bonds to attract capital, in the context when the State Bank of Vietnam (SBV) had made moves to tighten the short-term capital used for medium and long-term lending, in order to improve the asset quality of the system.

The Board of directors (BOD) of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank, stock code on HCM City Stock Exchange (HoSE): CTG) has just selected VietinBank Securities Companies Joint Stock Company (VietinBankSc) to perform activities related to the bank’s public bond offering in 2019 a move to prepare for the capital mobilisation through bond channel in the near future. Previously, in May, the SBV approved VietinBank’s plan to issue 10 trillion dong of bonds at self-decided interest rates.

Vietnam Prosperity Commercial Joint Stock Bank (VPBank, HoSE: VPB) has submitted the State Securities Commission (SSC) a set of document on the offer and listing of international bonds of the first phase in 2019 with a maximum value of 1.12 billion US dollars.

In early June 2019, Tien Phong Commercial Joint Stock Bank (TPBank) has also approved the policy of collecting shareholders’ opinions in writing on the plan to issue 200 million US dollars of Tier-2 international bonds in 2019.

Along with the above three banks, many other banks have been carrying out bond issuance to attract capital.

Recently, Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV, HoSE: BID) has announced the completion of its private placement of 200 billion dong of bonds on two terms of five and 10 years. This is one of the bank’s plans set from the beginning of the year to improve its financial capacity.

Similarly, Asia Commercial Joint Stock Bank (ACB, HoSE: ACB) by the end of June has implemented four out of five bond issuances on two and three-year terms, for the second phase in 2019 with a total value of 4.5 trillion dong (on a total expected amount of 5.5 trillion dong).

In April, ACB also approved the first bond issuance in 2019 with a total value of 2.5 trillion dong on a three-year term.

According to statistics of Military Bank Securities Company (MBS), from the beginning of the year until mid-June, nearly 18.2 trillion dong of bank bonds were issued. VPBank recorded the most success with nearly six trillion dong, followed by HCM City Development Commercial Joint Stock Bank.

The medium and long-term capital structure

In 2019, the SBV has drafted Circular 36 regulating the ratio of using short-term funds for medium and long-term lending. In the two proposed scenarios, at the latest by the end of 2022, the ratio of short-term funds used for medium and long-term lending of banks must be reduced to 30 percent. In the first phase from January 1st 2019 to June 30th 2020, this ratio is kept at 40 percent.

The data of the SBV by the end of April showed that this ratio at private joint stock banks was 31.52 percent.

The SBV’s deputy Governor Nguyen Thi Hong once shared that the essence of banks is financial intermediary which receives deposits and lends to organisations and individuals. One of the risks that banks pay attention to is liquidity. Banks must ensure the balance of capital mobilisation and lending across the terms. When a depositor withdraws capital, banks must meet the requirement, otherwise the information will be spread throughout the system and pose risk to the economy.

According to the SBV’s deputy Governor, the ratio of short-term funds used for medium and long-term is a very important factor of many countries, not only Vietnam. The credit control and ratio adjustment solutions of the SBV have been highly appreciated by credit rating agencies.

Under the orientation of the SBV, commercial banks have gradually been reducing their ratio of using short-term funds for medium and long-term lending. On the other hand, there are some banks that need to improve the capital quality to ensure meeting the Basel II standards such as VietinBank and BIDV.

In addition to the bond issuance, many banks have also tended to offer high interest rates competitiveness on long terms for large deposits. Typically, Viet Capital Joint Stock Commercial Bank (VietCapitalBank) offers interest rate of 8.6 percent per annum for terms from 24 months to 60 months, and Nam A Commercial Joint Stock Bank (NamABank) lists the interest rate for 24-month term at 8.45 percent, applicable for deposits of 500 billion dong.

Some other banks have been mobilising medium and long-term capital by issuing certificates of deposits (CDs). For example, Saigon Hanoi Commercial Joint Stock Bank (SHB) offers interest rates of 8.6 percent8.9 percent per annum for CDs on 18-month to 36-month terms. Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) applies deposit rate of 8.48 percent8.88 percent per annum on term of five years + one day, and Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) applies rate of 8.1 percent per annum for deposits with terms from 15 months to 36 months.

The moves towards more prudent credit growth stable asset structure of the SBV requires banks to solve a problem in terms of capital. In the coming time, it is likely that banks will continue to promote the mobilisation of medium and long-term capital, at the same time take measures to improve the quality assets themselves.

 

Category: Finance, Vietnam

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