Corporate capital demand set to accelerate in H2

Demand for credit and corporate bond issuance is expected to accelerate in the second half of the year as the macroeconomy recovers.

Banking operation at BIDV Hanoi. Photo: Pham Hung/The Hanoi Times

Local rating agency FiinRatings made the assessment in its recently released "Corporate Bond Market Report for May."

According to the report, the first driving force is the signs of recovery in the manufacturing sector. The General Statistics Office reported that the industrial production index for the past five months is estimated to have increased by 6.8% compared to the same period in 2023, with processing and manufacturing up by 7.3%.

The rebound in important markets has allowed exports to start growing again. After nearly two years, a US$1 billion trade deficit emerged last month. The increase in imports was primarily in production materials, while purchases of consumer goods declined.

"The trade deficit in May, driven by increased imports of raw materials, points to a recovery in the manufacturing sectors, signaling a positive outlook for corporate capital absorption," the report noted. Additionally, credit growth in the real estate business sector - including investment in real estate corporate bonds by commercial banks - is expected to recover as legal obstacles are gradually removed. New laws, including Land Law, Housing Law, and Law on Real Estate Business, are also expected to contribute to this trend.

Another driving factor is the recent increase in savings interest rates. FiinRatings noted that the 12-month savings interest rates of private banks increased by an average of 19 and 17 basis points in May and June, respectively, while state-owned banks' rates remained flat.

However, reduced liquidity in the system may prompt state-owned banks to raise deposit rates in the near future, posing a cost risk for floating-rate bonds. Conversely, this encourages the issuance of long-term fixed-rate bonds while current rates are still low.

In May, the private corporate bond market grew in issuance and value. As of June 6, the market saw 26 new issuances worth VND23.2 trillion ($911 million), an increase of 20.6% compared to April and 6.1 times higher than the same period in 2023.

Growth was mainly driven by financial institutions, with 19 issuances worth VND16.5 trillion ($648 million). Taking advantage of the low interest rate environment, banks increased bond issuance to strengthen capital adequacy ratios, and medium and long-term capital, and prepare for credit growth in the second half of the year.

At the regular May meeting, the Government reported that credit by the end of the month had only increased by 2.41% compared to the end of 2023, equivalent to 12.8% year-on-year. Since the beginning of the year, outstanding credit has increased by over VND326.8 trillion ($12.8 billion), still far from the target of injecting VND2,000 trillion ($78.5 billion) into the economy this year.

However, FiinRatings believes that with the accelerated corporate capital mobilization in the second half of the year, the State Bank of Vietnam's credit growth target of 14-15% for the full year can be achieved.

To meet the rising demand for credit, banks will become more active in bond issuance in the coming period, said FiinRating.