Customers make transactions at VPBank (Photo: VNA)Hanoi (VNS/VNA) - Vietnamesebanks are seeking to raise capital in international bond markets as they facegrowing pressure to hike capital to satisfy the central bank's regulationson minimum capital requirements and Basel II standards by early next year.
The Vietnam Prosperity CommercialBank (VPBank) is collecting shareholders’ opinions on its planto issue foreign currency bonds with a total value of up to 1.12billion USD. The majority of bonds would likely be issued under the EuroMedium Term Note Programme with a maximum value of 1 billion USD and terms ofthree to five years.
The bonds would be issued inseveral installments this year or next year to investors outside the US andwould be listed on Singapore’s stock exchange. The bank said the purpose of theissuance was to increase its scale of capital.
It was also planning to issuegreen bonds worth 120 million USD in a private placement to some investors. Ifthe deal goes through, it would be the largest issuance of its kind so far in Vietnam.
The Tien Phong Bank (TPBank) isalso seeking shareholders’ approval for the issuance of 200 million USD inforeign currency bonds this year. The time for collecting opinions is betweenJune 28 and July 12.
Last year, the Ho Chi MinhDevelopment Joint Stock Commercial Bank (HDBank) also planned to issue 300million USD in convertible bonds with a fixed interest rate for five years forless than 100 investors in 2019.
Issuing international bonds isnew to many Vietnamese banks as they are used to seeking foreign capitalthrough trade finance or trade credit agreements with major foreign financialinstitutions. Last year, LienVietPostBank received a 50 million USD loan fromJPMorgan Chase Bank’s Singapore branch.
The Sai Gon-Hanoi Bank (SHB) alsoobtained loans from two Russian banks including a 20 million USD loan on afive-year term from the International Investment Bank and a 20 million EUR loanfrom the International Bank for Economic Cooperation.
The International FinanceCorporation (IFC) has also provided long-term loans to local banks includingTPBank, Ocean Bank and An Bình Bank (ABBank).
Economist Vo Tri Thanh said bankswere under pressure to hike capital to meet the State Bank of Vietnam (SBV)’sCAR regulations, especially under Basel II standards. Selecting which type ofmobilisation depended on how the banks would optimise costs.
“The credit ratings of both Vietnamand local banks are getting better which reduce the risk premiums for bondissuances,” Thanh told Vietnam News, adding that local currencybonds faced higher interest rates.
In April, S&P Global Ratingsraised Vietnam’s long-term sovereign credit rating to BB from BB–. In May,Fitch Ratings revised Vietnam’s long-term foreign-currency issuer defaultrating (IDR) upward at ‘BB’ with a positive outlook. According to the globalratings agencies, the revision of Vietnam’s outlook to positive from stablereflected an improving track record of economic management, evidenced in highgrowth and stable inflation.
“Issuing international bonds isalso one way through which banks are connecting with potential strategicinvestors,” Thanh said.
However, according to financialexpert Nguyen Tri Hieu, banks may benefit from lower interest rates in theinternational market, but they had to bear the risk of exchange rate (forex)fluctuations.
"When issuing bonds, theexchange rate is relatively low, but when it comes to maturity, the exchangerate may increase and banks may have to buy US dollars at a higher price torepay the debt. In the context of forex volatility which tends to increase,international bond issuances will face significant risks," Hieu was quotedon economic and financial website cafef.vn as saying.
In addition, only strong bankswith good reputation and credit rating assessed by international ratingagencies could sell bonds overseas, he added.
Since the beginning of the year,the exchange rate has been fluctuating. The central bank is facing pressurefrom unpredictable developments in the US-China trade war and US-Iran tensions,as well as geopolitical instability.
However, the SBV has intervenedin 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 betweenMarch 1 and May 8.
Vietnamese banks have beenstruggling to raise long-term capital in recent years with the central banktightening 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 capitalcan now be used for long-term lending, down from the previous rate of 45 percent.
While mobilisation from depositorsis facing difficulties, many banks have been looking to issue bonds in thedomestic market with higher yields.
Last month, Vietcombank and AsiaCommercial Joint Stock Bank issued local currency bonds worth a combined 15trillion VND (643.8 million USD) with yields between 6.3 percent and 7 percentper year.
At the end of May, Vietinbankalso got the SBV’s nod to issue bonds with a total face value of 10 trillionVND (429.35 million USD) this year.-VNS/VNA
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