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Dinh Vu

Finance & Banking

Last updated: Friday, May 25, 2018


With Abundant Money, Banks Boost Investment

Posted: Thursday, March 16, 2017

Vietnamese credit institutions tend to buy each others' bonds, and boost repurchases and capital contributions in consumer finance companies.

With abundant liquidity, Vietnamese banks have accelerated their investments since 2016, especially when interbank lending rates are too low. According to their financial statements, government bonds are the most popular investment channel. The year 2016 also witnessed credit institutions returning to buy each others' bonds and increase purchases and capital contributions in consumer finance companies.

Priority placed on Vietnamese government bonds
According to separate financial statements of 2016 announced by banks, the balance of bond investment in 2016 continued to increase strongly, especially in State-owned commercial banks’ statements. Specifically, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank)'s securities investment portfolio stood at VND130.6 trillion, an increase of VND23.2 trillion or 21.6 per cent. Bank for Investment and Development of Vietnam (BIDV) invested VND143.4 trillion, up VND22.2 trillion, or 18.4 percent. Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) purchased VND133 trillion of bonds, up VND14.3 trillion, or 12.1 per cent.

Among joint stock commercial banks, Vietnam Prosperity Joint Stock Bank (VPBank) took the lead with an investment value of VND55.3 trillion, up VND7.6 trillion or 16 per cent, followed by the Military Bank (MB) with VND52.4 trillion, up VND5.9 trillion, or 12.7 per cent and Asia Commercial Bank (ACB) with VND42.6 trillion, up VND4.2 trillion or 11 per cent. Among lower-growing banks, Saigon - Hanoi Commercial Joint Stock Bank (SHB) spent VND18.8 trillion on bonds, up VND1.5 trillion or 8.6 per cent. Vietnam Export Import Commercial Joint Stock Bank (Eximbank) invested VND20.2 trillion, up VND1.1 trillion or 5.6 per cent and Vietnam International Commercial Joint Stock Bank (VIB) disbursed VND26.5 trillion on bonds, up VND534 billion or 2.1 per cent.

The balance at Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank) showed that its bond investment rose 68.5 per cent to more than VND65 trillion at the end of 2016 (a sharp increase of VND25.3 trillion) but the sharp rise was mostly resulted from the maturity of securities valued VND23.1 trillion, or up 143.4 per cent.

In the structure of investment securities, government bonds were a prioritised pick by State-owned commercial banks. With a stable macroeconomic outlook, 2016 saw buyer-attracting government bond auctions despite lower interest rates and longer maturity terms. For example, Vietcombank increased VND18,044 billion in government bond investment in 2016, including VND6,948 billion of available-for-sale securities and VND11,096 billion of securities held to maturity.

Due to limited lending imposed on BOT (build - operate - transfer) and BT (build - transfer) projects, the risk weight for real estate loans increased from 150 per cent to 200 per cent and the capital adequacy ratio (CAR) stayed low, State-run commercial banks actively optimised their use of capital by buying government bonds when the risk weight for government bonds was zero. According to the latest update by the State Bank of Vietnam (SBV), the CAR ratio of State-owned commercial banks was 9.92 per cent at the end of 2016, slightly higher than 9.42 per cent at the end of 2015, due to active secondary capital growth and the conversion from high risk-weighted assets to low-risk assets such as government bonds.

Investment in bonds issued by other credit institutions was also preferred because of higher interest rates while risks were acceptable, especially for commercial joint stock banks. Data showed that debentures issued by other credit institutions rose by VND5,133 billion at MB, VND2,468 billion at SHB, VND4,606 billion at Vietcombank, VND3,402 billion at VPBank (VND1,819 billion of bonds guaranteed by the Government) and nearly VND532 billion at VIB.

Long-term capital pool
In 2016, some lenders stepped up their capital contributions to set up subsidiaries or bought into finance companies to boost consumer lending. For instance, MB teamed up with Ageas Group and Muang Thai Life Insurance Company to establish MB Life Assurance Life Insurance Company with 61 per cent of stake owned by MB or VND671 billion and found MB Capital with a registered capital of VND500 billion to boost consumer lending. Earlier, it took over Song Da Financial Joint Stock Company and increased its stake at Military Insurance Company (MIC) from 49 per cent to 60 per cent.

SHB reported its subsidiary investment balance increased by VND2,204 billion after it upgraded SHB Laos Branch into a wholly foreign-owned bank in Laos, making it a wholly-owned subsidiary SHB Vietnam Bank from January 15, 2016. In addition, the lender acquired Vinaconex - Viettel Finance Company (VVF) to set up a financial company with a chartered capital of VND1,000 billion, which scheduled for commercial operations in 2017.

VPBank also increased its investment value into subsidiaries by VND1,290 billion as the lender boosted the registered capital for its finance company. Seeing the potential growth of consumer lending, in 2014, VPBank acquired Vinacomin Finance Company (CMF) from the Vietnam National Coal, Mineral Industries Holding Corporation Limited (Vinacomin), and then shifted its entire consumer lending business to a new independent legal entity, FE Credit, in February 2015.

In the past time, many banks also established or merged with financial companies to boost personal finance and consumer finance, for example, Maritime Bank's MSB FC, Techcombank's VCFC or HDBank’s HD Saison. Given the impressive growth in the past time, consumer lending is currently the fastest growing segment of the banking industry in Vietnam.

By increasing their investment in consumer finance companies, banks are not only benefiting from high interest rate loan growth, but also having the opportunity to sell its assets to foreign partners. Specifically, at the end of 2016, Military Bank signed a contract to transfer 49 per cent of stake in subsidiary MCredit to Shinseu, a Japanese bank. Or in April 2015, HD Bank sold 49 per cent of its shares to Credit Saison and HD Finance was renamed to HD Saison. Recently, some foreign partners expressed desires to buy into SHB-owned finance company.



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