Vietnamese banks' capital shortfalls triggers bond issuance frenzy

BIDV has approved the issuance of 400,000 bonds to raise $170.5m.

Vietnamese banks have been steadily issuing bonds en masse in an effort to boost struggling capital positions and meet regulatory requirements by 2020, reports VN Express.

Also read: Capital crunch clouds Vietnamese banks' stellar half-year profit results

State-owned BIDV has approved the issuance of 400,00 bonds to raise $170.5m (VND4t) months after the central bank greenlit the lender’s plan to issue a maximum of $852.59m (VND20t) worth of bonds in 2018.

Fellow state-owned lender VietinBank also closed its second bond issuance in 2018 with a $19.18m (VND450b) haul from two-year bonds with fixed 6% interest. This comes after it raised $103.82m (VND2.44t) through ten-year floating interest bands in July. Similarly, Vietcombank has also successfully raised $$23.44m (VND550b) through the issuance of individual bonds priced at $4.26 (VND100,000) per bond. 

A number of lenders like Ho Chi Minh Development Joint Stock Commercial Bank, Tien Phong Bank and Techcombank have turned to IPOs in an effort to add more funds to their Tier 1 capital.

Declining capitalisation levels have long plagued Vietnamese banks as their strong loan growth figures have outpaced internal capital generation. Banks need around $7b to $9b in capital to be able to achieve Tier 1 capital ratios of 11% in 2018 and 2019 whilst sustaining strong lending activities, according to Moody’s Investors Service.

Under Basel standards, banks will be required to keep capital adequacy ratios (CAR) from falling below the minimum level of at least 8%. The changes will take effect by January 1, 2020.

“Without external capital injections, the Tier 1 capital adequacy will fall to 8% for JSCBs and 6.1% for SOCBs by end of 2019, from 9.4% and 6.9% at the end of 2017,” Biinform Ratings said in a previous report.