Aug 26, 2019 / 23:16

Vietnam’s banks requested tighter control over corporate bonds

The Hanoitimes - In the first six months of 2019, total corporate bond issuance reached VND116 trillion (US$5 billion), up 7.4% year-on-year, including VND36.7 trillion (US$1.58 billion) from commercial banks, and VND22.12 trillion (US$953.53 million) from realty firms, among others.

The State Bank of Vietnam (SBV), the country’s central bank, has requested domestic commercial banks to control risks related to corporate bonds investments. 
 
Illustrative photo.
Illustrative photo.
According to the SBV, there are potential risks in corporate bonds investments by commercial banks since the start of 2019, particularly as the funds set aside for such investments make up a big proportion in total assets and continue to rise. 

The SBV pointed out a large amount of capital pouring into the real estate and construction sector, in spite of the fact that realty firms are facing difficulties in operation.

Moreover, certain banks have been investing in corporate bonds issued for debt rollover, which has now been forbidden by the SBV to ensure safety in banking operation. 

The SBV requested commercial banks to tighten their management in corporate bond investments in the real estate sector or for the purpose of capital mobilization of issuers which are realty firms. 

More importantly, banks have to step up efforts to supervise the cash flow after lending, so that they could detect irregularities of the repayment capabilities of enterprises, as well as internal violations within the banks themselves.

In the first six months of 2019, total corporate bond issuance reached VND116 trillion (US$5 billion), up 7.4% year-on-year, including VND36.7 trillion (US$1.58 billion) or 36% of the total from commercial banks, and VND22.12 trillion (US$953.53 million) or 19% from realty firms, among others. 

The average coupon rate of corporate bonds is in a range of 9.5% - 11% per year, which is 0.5 percentage points higher than the rates levels offered by commercial banks. 

As of the end of June, the capitalization of Vietnam’s corporate bond market was equal to 10.22% of the country's GDP, up 21% year-on-year and exceeding the target of 7% of GDP set for 2020. 

Deputy Minister Vuong Dinh Hue said the local corporate bond market has been growing at a rapid rate due to huge capital needs of the businesses. 

Meanwhile, the government has tightened credit growth quota, especially in risky sectors such as real estate. 

Hue said the strong growth of the corporate bond market in the January – June period has laid solid foundation for a capital channel to come into being in mid- and long-terms for enterprises, relieving pressures for banks. 

Moreover, the maturity period of corporate bonds is lengthy, of which the 5-year maturity period accounted for 66% of total bonds issued, with the majority of investors being organizations, while individuals made up 6.1% of the total. 

Hue, nevertheless, noted that without appropriate supervision of corporate bond issuances could lead to risks to the credit market and the macro economy.