Vietnamese banks are seeking to raise capital in international bond markets as they face growing pressure to hike capital to satisfy the central bank's regulations on minimum capital requirements and Basel II standards by early next year.
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The Vietnam Prosperity Commercial Bank (VPBank) is collecting shareholders’ opinions on its plan to issue foreign currency bonds with a total value of up to 1.12 billion USD. The majority of bonds would likely be issued under the Euro Medium Term Note Programme with a maximum value of 1 billion USD and terms of three to five years.
The bonds would be issued in several installments this year or next year to investors outside the US and would be listed on Singapore’s stock exchange. The bank said the purpose of the issuance was to increase its scale of capital.
It was also planning to issue green bonds worth 120 million USD in a private placement to some investors. If the deal goes through, it would be the largest issuance of its kind so far in Vietnam.
The Tien Phong Bank (TPBank) is also seeking shareholders’ approval for the issuance of 200 million USD in foreign currency bonds this year. The time for collecting opinions is between June 28 and July 12.
Last year, the Ho Chi Minh Development Joint Stock Commercial Bank (HDBank) also planned to issue 300 million USD in convertible bonds with a fixed interest rate for five years for less than 100 investors in 2019.
Issuing international bonds is new to many Vietnamese banks as they are used to seeking foreign capital through trade finance or trade credit agreements with major foreign financial institutions. Last year, LienVietPostBank received a 50 million USD loan from JPMorgan Chase Bank’s Singapore branch.
The Sai Gon-Hanoi Bank (SHB) also obtained loans from two Russian banks including a 20 million USD loan on a five-year term from the International Investment Bank and a 20 million EUR loan from the International Bank for Economic Cooperation.
The International Finance Corporation (IFC) has also provided long-term loans to local banks including TPBank, Ocean Bank and An Bình Bank (ABBank).
Economist Vo Tri Thanh said banks were under pressure to hike capital to meet the State Bank of Vietnam (SBV)’s CAR regulations, especially under Basel II standards. Selecting which type of mobilisation depended on how the banks would optimise costs.
“The credit ratings of both Vietnam and local banks are getting better which reduce the risk premiums for bond issuances,” Thanh told Vietnam News, adding that local currency bonds faced higher interest rates.
In April, S&P Global Ratings raised Vietnam’s long-term sovereign credit rating to BB from BB–. In May, Fitch Ratings revised Vietnam’s long-term foreign-currency issuer default rating (IDR) upward at ‘BB’ with a positive outlook. According to the global ratings agencies, the revision of Vietnam’s outlook to positive from stable reflected an improving track record of economic management, evidenced in high growth and stable inflation.
“Issuing international bonds is also one way through which banks are connecting with potential strategic investors,” Thanh said.
However, according to financial expert Nguyen Tri Hieu, banks may benefit from lower interest rates in the international market, but they had to bear the risk of exchange rate (forex) fluctuations.
"When issuing bonds, the exchange rate is relatively low, but when it comes to maturity, the exchange rate may increase and banks may have to buy US dollars at a higher price to repay the debt. In the context of forex volatility which tends to increase, international bond issuances will face significant risks," Hieu was quoted on economic and financial website cafef.vn as saying.
In addition, only strong banks with good reputation and credit rating assessed by international rating agencies could sell bonds overseas, he added.
Since the beginning of the year, the exchange rate has been fluctuating. The central bank is facing pressure from unpredictable developments in the US-China trade war and US-Iran tensions, as well as geopolitical instability.
However, the SBV has intervened in the foreign exchange market to stabilize the VND/USD exchange rate. According to World Bank data, the VND weakened by 0.7 percent against the USD between March 1 and May 8.
Vietnamese banks have been struggling to raise long-term capital in recent years with the central bank tightening the ratio of short-term capital for medium- and long-term loans. According to SBV regulations, only 40 percent of a bank’s short-term capital can now be used for long-term lending, down from the previous rate of 45 percent.
While mobilisation from depositors is facing difficulties, many banks have been looking to issue bonds in the domestic market with higher yields.
Last month, Vietcombank and Asia Commercial Joint Stock Bank issued local currency bonds worth a combined 15 trillion VND (643.8 million USD) with yields between 6.3 percent and 7 percent per year.
At the end of May, Vietinbank also got the SBV’s nod to issue bonds with a total face value of 10 trillion VND (429.35 million USD) this year.-VNS
Vietcombank is offering to sell 6.5 percent of shares to foreign investors this year in a plan to raise charter capital.
Though there remains six months, some banks have almost used up the assigned quota for the whole year, and experts said it would be difficult for the banks to get an expansion approval from the State Bank of Vietnam.
A series of commercial banks, including the big four, are planning to issue shares to foreign investors.