Foreign capital flows through Vietnamese banks

Hanoitimes/VOV

Local banks have provided syndicated loan value of USD2 billion so far in 2019.

As capital demands of Vietnamese firms are rising sharply, local banks are increasingly cooperating with foreign financial institutions to provide offshore loans, making the business become lucrative.

A series of banks, such as LienVietPostBank, SHB, OCB, VPBank, TPBank, Techcombank, have so far joined hands with JP Morgan Chase Bank, International Investment Bank (IIB), International Bank for Economic Cooperation (IBEC), International Finance Corporation (IFC) and Deutsche Bank to provide syndicated loans worth hundreds of millions US dollars.

Techcombank, for example, has signed agreements with foreign banks to fund corporate borrowers. The bank provided long-term syndicated loans worth USD1.1 billion for conglomerate VinGroup alone.

SHB and IIB have also signed a five-year deal on the latter’s provision of USD20 million in loans to the former to develop IIB’s infrastructure work in Vietnam and the import-export activities of goods from IIB member countries.

IFC also provided a USD100 million syndicated loan for TPBank after outlaying USD17.3 million to acquire 5% of the bank’s shares.

The IFC-led financing package will help the bank further extend long-term funding to micro, small and medium-sized enterprises and individual borrowers through digital delivery channels, according to TPBank.

LienVietPostBank has also signed a contract with JP Morgan Chase Bank, which has provided it with a USD50 million loan with a three-year term. The bank has also received another three-year syndicated loan worth USD50 million from eight Taiwanese banks headed by Cathay United Bank.

“The loans help the bank integrate more deeply into the international finance market,” Nguyen Anh Van, deputy CEO of LienVietPostBank, said, adding it will also supplement its medium- and long-term foreign currency resources, improve its capital mobilization structure, and partly respond to local businesses’ demand for borrowing foreign currencies.

Uptrend forecast

According to experts, Vietnamese companies are borrowing the most in six years in the offshore loan market as the Asia’s fastest-growing economy benefits from businesses shifting their supply chains away from China.

Reports showed Vietnam’s dollar syndicated loan volumes have surged 119% to USD2 billion so far in 2019 from the same period last year. In 2018, total amount of syndicated loans in the country reached USD3.6 billion.

Funding from international financial organizations is used by Vietnamese banks for lending that has strong socioeconomic benefits, including boosting financial inclusion and improving access to credit for the country’s small- and medium-sized enterprises (SMEs).

Besides, mobilizing funds from overseas can help banks tap into wider foreign and, usually, lower cost funding sources.

Moody’s Investors Service analysts said while foreign loans increase banks’ reliance on market funds, the credit lines provided by international financial institutions like IFC and Asian Development Bank (ADB) are stable and helping to improve banks’ asset liability profile.

Further, Vietnamese banks seeking loans need to comply with certain financial covenants and improving financial transparency is also key in getting these loans, which are both credit positives.

According to Nguyen Thi Thuy Anh, research analyst at Viet Dragon Securities Corporation, the fact that some international financial organizations are funding local banks reinforces the latter’s reputation, creditworthiness, and position not only in Vietnam but also in global markets.

Cross-border loans might also support the development objectives of international financial organizations and local banks’ strategies, especially those focusing on the retail and SME segments, Anh said.

The willingness of domestic banks to cooperate and share profits through syndicated loan contracts and co-financing contracts with foreign partners showed that the competitiveness of domestic commercial banks improved quite strongly.

Financial experts forecast that the syndicated loan transactions in Vietnam market would be a lucrative and attractive market for domestic credit institutions and the trend is forecast to continually grow significantly in the time to come.