Corporate bonds give bank deposits a run for their money

It started at the beginning of the year and there are no signs of things slowing down.

According to a State Bank of Viet Nam report in mid-March, banks’ deposit interest rates have not changed much. The following are those that have been regularly updated on the central bank’s website and also at many commercial banks.

Interest rates are 0.5-1 per cent a year on non-term deposits and those of up to one month, 4.5-5.5 per cent for one to six months, 5.5-6.5 per cent for six to 12 months, and 6.6-7.3 per cent for over 12 month.

But the actual rates banks are paying are quite different.

Interest rates on deposits of below six months are 5.5-8.1 per cent though there is a stipulation about the deposit amount, and 8.5-8.7 per cent for deposits of over a year.

National Citizen Bank, Viet Capital Bank, Bac A Bank, VPBank, PVComBank, VietA Bank, Sai Gon Commercial Bank, and Orient Commercial Bank are among those offering 7 per cent on six-month deposits.

Sai Gon-Ha Noi Joint Stock Commercial Bank (SHB) is offering up to 8.7 per cent for 18-month deposits of VND2 billion or more.

For 24-36 month deposits, SHB is offering 8.7-8.9 per cent.

Analysts said the demand for credit is high at the beginning and end of every year because of the country’s biggest festival, the Lunar New Year, and so banks need to hike rates to get more deposits and ensure liquidity.

From the beginning of this year, banks were required to increase their ratio of medium- and long-term deposits, and so tended to hike interest rates on them.

Another important reason is that the banking sector now has to compete with corporate bonds, which are offering very attractive interest rates.

Vingroup’s consolidated financial statement in the fourth quarter of 2018 showed the company had raised VND51.52 trillion (US$2.24 billion) by issuing bonds in dong.

The bonds carried coupon rates of 3-5 percentage points above banks’ average interest rates on 12-month deposits.

Masan Group mobilised VND15 trillion ($652.2 million) from ordinary dong bonds carrying a coupon rate of 8 per cent for the first year and subsequently 3.2 percentage points above the average 12-month deposit interest rates set by the four biggest banks.

Novaland’s bonds also carry a very high interest rate of 10.9 per cent.

Not only large companies like Vingroup pay high interest rates on bonds, smaller companies do too.

Besides higher interest rates, the bonds also come with their interest and principal payments guaranteed by a third party such as a bank or insurance company.

Reports of listed companies reveal that many have parked their funds in corporate bonds guaranteed by banks.

This trend has changed the role played by securities companies, who are no longer just stock brokers but advise bond issuers and act as paying agents for them.

Big customers are now getting used to high interest rates offered by bonds, and this is what banks are up against, a banking expert said.