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Banks hold US$8 billion worth of corporate bonds

The proportion of corporate bonds to total assets of commercial banks is not too large but risks still exist, especially if banks hold bonds of weak real estate firms, according to Le Hong Khang from FiinRatings.

Seventeen commercial banks had corporate bonds ready to sell on December 31, 2022 with a total value of VND188 trillion. The figure was VND28 trillion lower than on December 31, 2021.

The decrease was attributed to a decline in new investments, a sharp fall in new bond issuance and buyback before maturity, especially real estate bonds. At the end of 2021, the total non-finance corporate bond value that 28 listed banks held was VND290 trillion.

The five commercial banks that had the largest amount of bonds were MBBank Techcombank, VPBank, TPBank and SHB.

The effects of corporate bonds to banks and risks depend on many factors. This doesn’t mean that the banks holding larger amounts of bonds have higher risks and vice versa.

The factors include the credit ratings of enterprises that issue bonds and in the capability of meeting debt obligations.

At present, the total outstanding balance of corporate bonds accounts for 2.3 percent of total assets. The impact, if it exists, is not worrying if bond restructuring is done according to Decree 08 and government solutions are implemented effectively.

Asked if there is an increased risk of bad debt because of bonds, Khang said that banks holding bonds or lending money to real estate firms with medium or weak credit capability may face a knock-on effect on loans held by bonds.

If violations occur, for example, if issuers are slow in paying debts, a cross-default provision can be applied which allows lenders to collect debts to ensure benefits of lending institutions.

However, Khang believes that commercial banks can promote restructuring of bond debts and credit depending on the situations of each enterprise and project. Decree 08 has set up a mechanism allowing investors, including banks, to do this.

However, if enterprises were tardy in paying principal and interest of bonds because of default, and if they cannot find solutions to improve liquidity, the possibility of the enterprises not satisfying debt obligations is high.

According to Khang, the total value of privately placed corporate bonds issued by non-finance enterprises to mature in 2023 is estimated at VND235 trillion. 

Of this, real estate bonds to mature is about VND100 trillion. The total bonds to mature in the next two quarters would be VND36.2 trillion in Q2 and VND35.4 trillion in Q3.

This poses pressure on cash flow, especially in the gloomy situation of the real estate and power sectors, and sectors related to real estate such as construction and building materials.

“We hope that the new policies, including Decree 08 on privately issued bonds and Resolution 33, will serve as the foundation to create favorable conditions for market member companies to step up debt restructuring, as well as offer investors access to new credit sources with longer terms, while measures to solve legal problems for the real estate market are implemented at the same time,” Khang said.

Khang said that corporate bond issuance will activate again as a solution to refinance debt obligations in general, including bond debt. However, this can only be done with the participation of new investors, especially institutional investors. 

Insurance companies are not allowed to invest in corporate bonds with the purpose of refinancing in accordance with the Law on Insurance Business which took effect in early 2023. Therefore, the bond demand will come mostly from credit institutions, other domestic and foreign institutions and the public.

Khang said the bond market will recover step by step, but very slowly, while there won’t be high expectations on the real estate bonds until legal problems are removed, credit supply is open in a selective way and real estate firms accept to slash real estate prices.

The market will recover slowly, but will develop sustainably. It will be reserved to professional investors with deep knowledge who well understand the risks commensurate with the interest rates to be offered.

Manh Ha


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