Banks buy corporate bonds instead of lending to businesses
VietNamNet Bridge – The banks’ move of pouring big money into corporate bonds, in the eyes of analysts, is a form of providing loans to businesses. Analysts have warned that it will be very difficult to settle the bad debts from the bond investments.
Saigon Dau tu has quoted its sources as reporting that about VND15 trillion worth of corporate bonds was issued in the first six months of 2013, approximate the value of bonds issued in the whole year 2012 (VND17 trillion). In the third quarter of 2013 alone, at least VND13 trillion worth of bonds was issued.
If noting that at least three corporate bond issuance campaigns are carried out, the total value of corporate bonds to be issued in the whole 2013 may reach VND34 trillion.
In the latest news, VP Bank has announced the plan on issuing VND2.5 trillion worth of 10-year bonds. Analysts have predicted that VP Bank’s bonds would be sold out in the context of the current high demand.
Analysts have noted that banks were the major buyers in the bond issuance campaigns. The buyers do not intend to re-sell the bonds on the secondary market, but tend to hold the bonds until they get matured.
Meanwhile, the issuers do not intend to list their shares, while the information about the issuance was not made public.
Especially, in 50 percent of cases, there were only one buyer and one seller. Three out of seven institutions which issued bonds in the third quarter asked to keep the issuance confidential when reporters contacted for interview.
Dau tu chung khoan has quoted a banker as saying that injecting money in corporate bonds is a way to providing loans to businesses.
Why do commercial banks tend to pour money into corporate bonds instead of lending money directly to businesses, then?
In some cases, corporate bonds were used as an instrument for banks and businesses to restructure the debts rather than the instrument to mobilize capital for the production and business. Therefore, the big amounts of successfully issued bonds do not mean the improvement in the credit growth.
Lawyer Truong Thanh Duc from Basico law firm agreed that this is the credit providing under the mask of the investment in corporate bond. He said that some banks once held the corporate bonds worth 40 percent of the banks’ total outstanding loans.
Analysts have raised their concern about the bond issuance in masses in the context of unclear information.
In developed markets, issuers’ credit ratings serve as the important indexes for investors to refer when considering investment opportunities. Meanwhile, in Vietnam, the issuers do not have credit ratings, while there is no detailed information about what the capital to be mobilized would be used for.
Duc has warned that it would be a big headache to commercial banks to deal with the bad debts from corporate bonds.
When banks provide loans, they can collect the principals and interests monthly or quarterly, which allows them to control the borrowers’ use of capital regularly. Meanwhile, bond issuers pay interests annually.
This means that it would be more difficult for banks to keep a watch over their capital when injecting money in bonds, and it would also be more complicated to deal with the bad debts.Thanh Mai