Supplementing low-cost loans for businesses

>> The outlook for maturing real estate corporate bonds might be more positive in 2024 compared to 2023

In May, Vietnam commercial banks continued to account for a sizable percentage of newly issued corporate bonds.

New bond issuances are on the rise

The VIS Ratings figures revealed that the new issuance value continued to rise in May 2024. This month, fresh bond issuances totaled VND 28 trillion, up from VND 19.2 trillion in April 2024. The majority of new issuances in May 2024 came from commercial banks. Over the recent five months, fresh issuances totaled VND 67.1 trillion, 93% greater than the same time in 2023.

In May 2024, commercial banks issued 30% subordinated bonds, which qualify as Tier capital, and 70% senior unsecured bonds. BIDV and MB issued subordinated notes with an average duration of 9.3% years and coupon rates ranging from 5.8% to 6.5% in the first year, which are higher than other banks' senior unsecured bonds with 3-year maturities and fixed coupon rates ranging from 3.9% to 5.4%.

Corporate market turnover (total traded value/outstanding bonds) climbed by 2% to 7% in May 2024, following a spike in April 2024, indicating improved market liquidity. Bank and residential real estate bonds accounted for more than 70% of total monthly trade.

In May 2024, the average yield on the majority of traded bank bonds with above-average credit quality remained constant across all tenors compared to the previous month.

Another report from FiinRatings revealed that the number of new issuers with credit ratings increased. This demonstrates that many issuers are becoming more conscious of the importance of credit ratings in enhancing their prospects of raising funds.

>> Efforts done to increase attractiveness of corporate bond market

Cheap capital support channels

In May, the bulk of fresh issuances came from commercial banks such as MB, BIDV, Shinhan, HDBank, TPBank, Techcombank, and MSB. These banks issued bonds with relatively modest coupon rates, depending on the kind of corporate bond: MSB (3.9%/year), MB or Techcombank (4.5%/year), HDBank (4.8%/year), and variable coupon rates starting at 5.7% per year plus deposit interest margins.

Deposit rates rose significantly in May, with small and medium-sized commercial banks leading the way. These banks began hiking deposit rates at the beginning of the month, a move that was later followed by larger commercial banks. As of May 21st, statistics from monitored institutions showed that the average 12-month deposit interest rate for small and medium commercial banks increased by 0.3% month on month, while big commercial banks witnessed a 0.1% gain. Although state-owned banks have not yet formally revised their deposit rates on their websites, it is expected that they will soon join this rising trend.

MBS predicted that credit demand would begin to rise substantially in the third quarter of 2024, driven by robust production and investment growth. For 5M24, the index of industrial production (IIP) climbed by 6.8% year on year, while the Purchasing Managers Index (PMI) jumped to 50.3 in May. Furthermore, governmental and private investments grew by 5% and 7.8%, respectively.

"We anticipate that the 12-month deposit rate of big commercial banks would increase by 70-100 basis points and gradually recover to 5.3%-5.6% by the end of 2024. However, we expect that output rates will stay stable because regulators and commercial banks are actively working to supply credit capital to enterprises," stated MBS.

With current deposit rates and a focus on new bond issuances, it is apparent that commercial banks are using their advantages to get funds to cover medium- and long-term loans.

According to Mr. Nguyen Nhat Hoang, CFA, Manager of Corporate Sector Ratings at FiinRatings, banks and stock firms continue to be the largest investors in the corporate bond market. In the meantime, there are still significant untapped resources. However, given banks' dominant position in credit supply and bond issuance, the acceleration of low-cost capital mobilization implies that banks are balancing capital to take the lead in a new period of loan expansion.

S&P Global analysts expect that Vietnam's real GDP will rise by 6.3% in 2024, owing to a variety of factors, such as improved capital markets and supporting facilities.