Banks rush to borrow money from foreign sources

Banks rush to borrow money from foreign sources

Big Vietnamese commercial banks are going to issue international bonds in 2012.

Sacombank’s Board of Directors has said it was going to submit to the shareholder’s meeting the plan to issue 200 million dollars worth of five-year international bonds. These would be unconvertible bonds with no mortgaged assets.

Foreign currency capital mobilization going slowly

Sacombank plans to issue international bonds in the second or third quarters of 2012 at the market interest rates to be fixed at the time of issuance, which would be listed on the Singaporean Stock Exchange.

If the bank’s bond issuance gets the nod from the government, Sacombank would become the fourth bank in Vietnam which plans to issue international bonds in 2012.

Prior to that, Vietcombank revealed the plan to issue one billion dollar worth of 10-year international bonds. ACB also planned to issue 100 million dollars worth of bonds.

Meanwhile, Vietinbank alone seeks two billions dollars worth of capital from bond issuance this year. In early May 2012, Vietinbank became the first Vietnamese bank which successfully issued 250 million dollars worth of five-year international bonds.

An executive of Sacombank said the bank needs to issue international bonds after it met difficulties in mobilizing capital from the domestic market in 2011. By the end of 2011, Sacombank’s mobilized capital had reached 123,316 billion dong, just fulfilling 88 percent of the plan.

The State Bank’s tightened monetary policies led to the low growth rate in the mobilized capital of the bank in 2011 in comparison with the previous years. Meanwhile, Sacombank wished to obtain the 16 percent growth rate in the mobilized capital in comparison with late 2011 to reach 143,500 billion dong.

Vietcombank showed the same reason when explaining its plan to issue international bonds. In 2011, the mobilized capital in foreign currencies amounted to 83.77 percent of the total mobilized capital. However, the volume of capital decreased due to the regulation on the 2 percent ceiling dollar deposit interest rate.

The bank also revealed while the foreign currency deposit brought 30 percent of the total mobilized capital, the foreign currency loans amounted to 32.43 percent of the total outstanding loans. Meanwhile, the bank needs stable and long term foreign currency capital; therefore, it needs to seek the capital from foreign sources.

Not a good thing for the national economy

Experts have pointed out that it would be better to seek capital from the public than issuing bonds in the international market. However, banks have no other choice for now. As they can pay 2 percent at maximum for dollar deposits, they cannot attract deposits from people.

Dr Le Tham Duong from the HCM City Banking University has warned that it would not be a good thing for the national economy if banks rush to borrow money from foreign sources.

Meanwhile, Dr Le Dat Chi from the HCM City Economics University has warned that this would make the plan to ease interest rates become impossible.

In general, banks issue bonds at the interest rates of 7-8 percent per annum on average (while they only pay 2 percent for dollar deposits in Vietnam). If banks convert the capital to be mobilized from the bond issuance into dong and lend dong to businesses at the interest rates of 13 percent at least, the interest rates would not go down as expected.

Banks would not lend at the lower interest rates, because they themselves have to pay high for the capital from foreign sources. The overly high foreign debts, together with the trade gap, would put a hard pressure on the dong/dollar exchange rate.

vietnamnet