Doubts raised about the feasibility of international bond issuance campaigns

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VietStock FI English - 29 month(s) ago 1 readings

A series of big Vietnamese commercial banks have announced that they plan to issue long term international bonds. The information has surprised people, who cannot understand why banks still seek foreign currency capital, though they have dollars in excess and the dollar lending has been tightened.

The Vietnam Bank for Foreign Trade (Vietcombank) plans to issue 10-year one billion dollars worth of international bonds at maximum this year.

Vietcombank’s mobilized capital in foreign currencies accounts for 30 percent of the total mobilized capital of the national economy, while its lending in foreign currencies accounts for 32.4 percent of the total outstanding loans, and the ratio of lending on mobilized capital is 83.8 percent.

Meanwhile, it’s really difficult to mobilize foreign currency capital now due to the low ceiling deposit interest rate set up by the State Bank. Meanwhile, the demand for foreign currency loans remains firmly high.

Therefore, Vietcombank believes that it needs to seek long term and stable sources of foreign currency capital by issuing international bonds.

General Director of the Asia Commercial Bank (ACB) Ly Xuan Hai said the bank is negotiating with foreign partners on the plan to issue 100 million dollars worth of long term international bonds.

Prior to that, in 2011, Vietinbank revealed the plan to issue 500 million dollars worth of international bonds. On March 19, the bank kicked off the series of roadshows in Singapore, Hong Kong, London, Boston, New York, Los Angeles, San Francisco to offer to sell bonds.

A recent report by the State Bank shows that a downward trend in the total deposit balance of individuals and institutions was seen in the first months of 2012. Meanwhile, some commercial banks still reported high ratios of the lending on the mobilized capital.

As such, it is understandable why banks rush to mobilize capital in foreign currencies.

However, Dau tu tai chinh newspaper quoted Pham Trung Cang, Deputy President of Eximbank, as saying that banks now have hundreds of millions of dollars in excess, and that banks try to call for capital from the international market not to lend, but use as the provisioning to satisfy the required CAR (capital adequacy ratio

Dr Le Xuan Nghia, a well-known economist and former member of the National Finance Supervision Council, has noted that the State Bank tends to impose a stricter control over the capital adequacy norms. Therefore, the banks’ demand for increasing capital has been increasing, thus leading to the demand for long term capital from foreign sources.

However, in order to successfully call for capital on the international market, banks would have to follow a lot of procedures and satisfy a lot of requirements. The issuers have to get the permission from the State Bank which would give the nod only if the values of the bonds are within the foreign borrowing limit approved by the Prime Minister.

However, not all the banks can have the relations with the partners good enough to successfully call for capital.

In 2011, some big conglomerates including: PetroVietnam, Vinacoal and the Electricity of Vietnam had to delay the plan on issuing international bonds. Spencer Lake, a senior executive of HSBC Group, believes that the decision was made because of the unfavourable conditions of the market.

He said on Thoi bao Kinh te Saigon that the international capital market was badly affected by the public debt crisis. Meanwhile, the credit ratings of Vietnamese enterprises were lowered because of the Vinashin case.

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