Capital mobilisation through corporate bonds may decrease sharply

FiinRatings data shows that the size of bond credit is currently at 273.9 trillion VND (12 billion USD) at the end of 2021. (Photo: VNA)

The scale of capital mobilisation through corporate bonds is forecast to decrease sharply, but there will be a drastic change in quality, according to a study on the corporate bond market by FiinRatings.

A number of violations related to corporate bonds handled recently, along with ongoing policy changes, including the State Bank of Vietnam's Circular 16 on regulations on bond trading by credit institutions and the changes and additions expected to be included in the draft Decree 153 on private placement, are likely to make the corporate bond market significantly reduce in size by 2022, said FiinRatings.

In 2021, the scale of mobilisation through the domestic corporate bond channel reached 682 trillion VND. This meant that the bond market was a very large capital mobilisation channel, because this figure accounts for 54 percent of the annual percent change in the credit growth balance of the whole system in 2021.

The corporate bond market has proven to play an important role as a medium and long-term capital channel for the development of businesses in many different industries in the context of COVID-19.

Assessing the trends and prospects of the corporate bond market in the second half of 2022 and 2023, FiinRatings experts said that businesses with a good foundation and better transparency, especially listed companies, would still promote bond issuance activities.

The bond channel is still an effective capital mobilsation channel in the context of very low interest rates for banking deposits.

Raising capital through the stock market also attracts investors, but the stock market is still in a phase of uncertainty. Besides, this activity is more suitable for issuers that are public companies with transparency in information according to current regulations.

Analysts of FiinRatings expect a change in the quality of the corporate bond market and this may be reflected in the massive growth of the public offering, especially from businesses with transparent credit records in the market.

Private placement will still be conducted, although it may be less active than in the past years and aimed at a broader investor base, including professional inpidual investors, financial institutions such as insurance, bond funds, pension funds, instead of focusing mostly on commercial banks and securities companies.

Commenting on the impact of corporate bond quality on the credit quality of the banking industry, according to FiinRatings, together with securities companies, commercial banks have participated in buying corporate bonds through the primary issuance channel to a relatively large extent, accounting for 36 percent in 2021 of the total issuance value from real estate businesses.

The application of State Bank's Circular 16 on regulations on bond trading, according to FiinRatings, is necessary to control the quality of bad debts, especially banks with weak asset quality, control the size of real estate credit, and control credit transfer activities between the two channels of bonds and bank loans.

FiinRatings data shows that the size of bond credit is currently 273.9 trillion VND (12 billion USD) at the end of 2021, accounting for only 2.16 percent of total earning assets and 2.63 percent of total credit outstanding of the commercial banks in Vietnam.

The popularity of the corporate bond investment channel is not only large in scale, but also has the strong participation of inpidual and professional investors through redistribution of bonds issued in the form of private placement from related organisations such as consultants and distributors in the market./.