Buying Frenzy
In a money market report for the week of December 27 to December 31, 2021, the SSI Securities Analysis Center and SSI Research said that during this period, the State Bank of Vietnam injected VND 10.54 trillion by buying a term of 14 days from opening. market at an interest rate of 2.5% per annum. In this, transactions were concentrated on the last day of the week for around VND 9,980 billion. Market analysts say the move came under pressure from local cash shortages at the end of the year.
Earlier, Saigon Investment published an article reflecting the liquidity of the banking system at a troubled time, with credit growth halted, reaching 12.68% as of December 20, 2021. Simultaneously, capital raising by credit institutions as of 24 December 2021 only increased by 8.44%. Slow mobilization relative to credit was the reason the State Bank of Vietnam was forced to inject money.
For most of 2021, interest rates on deposits maintained a downward trend as banks were unable to lend during the first months of the year, so there was no need to strongly absorb the entry capital. Interest rates on 12-month deposits had fallen to historic lows. However, since November deposit interest rates have shown signs of rising and in December they rose at many banks. Therefore, in addition to borrowing from the State Bank of Vietnam in Market 2, many banks have joined the mobilization race by raising interest rates on deposits in Market 1.
Nevertheless, the savings channel has not yet escaped strong competition from the securities and real estate channels, as banks raising interest rates from 0.3% to 0.5% have not yet created a steady base. Banks have accelerated bond issuance to increase capital, and the issuance value of each batch is reaching trillions of dong and the frequency is increasing.
Recently, every few days, banks have announced the issuance of bonds. For example, LienVietPostBank announced from December 11 to offer 40 million bonds, divided into two phases in the fourth quarter of 2021 and the first quarter of 2022, with two types of bonds with a duration of seven years and ten years. This has a total supply value at face value of VND 4 trillion. Also in December, VietCapital Commercial Joint Stock Bank issued 25 million bonds to the public with a total face value of VND 2.5 trillion with five issues. Agribank issued 2 million bonds with a term of seven years with a total expected value of VND 2 trillion. BIDV offered 90 million bonds with a face value of VND 100,000 per bond in two phases to raise VND 9 trillion.
The stress is quite evident in both the duration of deposits and in interest rates. In the above plan, VietCapital Bank has announced a fixed interest rate of up to 8.5% per annum for a term of seven years on the first issue, and the expected interest rate for the next four issues at 9% per year. LienVietPostBank announced the interest rate for seven-year bonds at 7.425% per annum, for ten-year bonds at 7.725% per annum.
At Agribank, the interest rate on bonds is 1% to 1.2% per annum, higher than the twelve-month average interest rate on deposits of four banks, namely BIDV, Vietcombank, VietinBank and Agribank, where bondholders receive interest every six months. The fact that banks not only promote the raising of capital in markets 1 and 2, but also create big waves in the bond market, shows that the capital needs of commercial banks today are very large.
Less transparency
Compared to the task of raising capital, issuing bonds is a quick fix to many financial problems. First of all, we must mention the need to issue bonds to increase Tier 2 capital, to ensure the capital adequacy ratio, because credit growth is much faster than capital growth. This is still a constant demand from banks in addition to increasing Tier 1 capital. In the 11 months of 2021, there was VND 46.5 trillion in Tier 2 capital, representing 27% of the total volume resignation. Another reason is that the banks must restructure the terms of debt repayment in accordance with the circulars issued on 01/2020, 03/2021 and 14/2021, with the value of the extension and postponement of the debt accumulated until the December 20, 2021 of approximately VND 607 trillion.
In the plan to issue VND 9 trillion of bonds, BIDV said the purpose of the issue was to increase the size of the bank’s working capital, create more channels to attract medium and long-term capital and to meet the various investment needs of clients. , while ensuring the sustainability of the bank’s capital. Proceeds from the bond issue will be used to lend to the economy for many industries such as power generation, distribution, manufacturing and industrial trading. Agribank mobilizes long-term capital to meet loan demand, supplement demand for loan capital for energy, agriculture, rural areas, seafood, processing and manufacturing industries.
Announcements of bond issuance by banks show that the main buyers are banks and securities companies. Fiin Group statistics show that in the first nine months of 2021, banks were the main group of investors buying bonds at 56% of the total issued value. Banks that buy bonds tend to hold, while securities firms buy very heavily but then sell back, mostly to secondary investors. In the first six months of 2021, securities companies distributed about VND 70 trillion in the market.
Most worryingly, if banks have a common practice of buying from each other, then there will be several risks expected in the future. The interest rate of bonds is increasing more and more, while the volume of issues is increasing, and if banks buy and sell bonds, it will cause circulation of capital in the banking system and, therefore, capital flows will become less transparent. The reality is that banks need money to supplement capital in the medium and long term, so they must constantly raise capital from market 1, which comes from bonds. However, the fact that the banks hold each other’s bonds will make it difficult to distinguish whether the banks are attracting capital to supplement medium and long-term capital for loans, or issuing bonds to meet all of their capital adequacy ratios. own funds.
