HONG KONG, Aug 29 - Vietnam's top commercial banks are considering their first US dollar offerings since 2012 at a time when the country's sovereign bonds have soared to record levels.

In recent weeks, debt bankers have been spending more time in Vietnam, while at least four Vietnamese lenders have had their credit ratings affirmed or received their first global credit score.

A Singapore-based banker said he had received reverse enquiries from global US-based emerging-market funds on government-linked Vietnamese banks, a sign that investors are ready to go down the credit curve for higher yields.

"We are in discussions with Vietnamese banks, and they like the idea given that the market has rallied, including the sovereign," said the banker. "We're speaking to the top lenders."

A prospective issue from a major Vietnamese bank is likely to attract widespread investor interest at a time when record-low yields across the developed world are pushing many global funds into emerging markets.

Those fund flows have driven Asian sovereign yields to record lows. Vietnam's $1 billion 4.8 percent November 2024, the sovereign's most recent offshore bond, was last week trading at a yield of 3.57 percent, the lowest since it was issued nearly two years ago. Its $1 billion 6.75 percent January 2020 was also trading at a record 2.88 percent, according to Thomson Reuters data.

Bankers and investors have said B1/BB-/B+ rated Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) is a possible candidate, given that it has US$250m of bonds maturing in May 2017 and may consider refinancing the notes offshore. S&P affirmed its rating on August 11.

JSC Bank for Foreign Trade of Vietnam (Vietcombank) received a first-time issuer rating of B1 from Moody's in July.

Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) is in talks with banks for a potential US dollar issue, but a banker close to the issuer has said a mandate from last year for an offshore debt issue has expired due to a lengthy approval process. S&P affirmed BIDV's respective B+ and B long-term and short-term issuer credit ratings this month.

VietinBank and BIDV are among the country's largest lenders, alongside Vietcombank, the biggest in terms of market value.

Vietnam Technological and Commercial Joint Stock Bank (Techcombank), one of the biggest privately owned lenders, also had its BB- S&P rating affirmed in August.

"We certainly think we should see some deals in the short term," said Moody's analyst Eugene Tarzimanov. "We expect US dollar issuance to pick up because we think the banks will want to continue their growth story."

Vietnam, meanwhile, met investors through a non-deal roadshow in March via BNP Paribas, Credit Suisse, Deutsche Bank, HSBC and Standard Chartered. A roadshow was in the works but was subsequently cancelled, one source said.

Expectations that these lenders could raise US dollar debt for the first time since VietinBank's foray to the international markets in May 2012 come as these banks face increasing demand for US dollars from local exporters and businesses. GDP growth hit 6.7 percent last year, the fastest since 2007.

Bank credit has been rising even faster, with loan books at Vietnamese banks up 25% in 2015, according to Moody's.

"Senior unsecured bonds are an attractive means of funding because they are less restrictive than the bilateral sources they've been using for special lending programmes, and could provide potentially higher margins even though the cost of funding is not necessarily cheaper," said Tarzimanov.

Non-performing loans, which had plagued the banking system for years, dropped dramatically. The NPL ratio fell to 2.58 percent in June from 2.78 percent in May, according the State Bank of Vietnam, a far cry from 17.2 percent as recently as 2012. Risk and return Global EM funds recorded unprecedented inflows in July, as the UK's Brexit vote pushed more investors out of developed markets.

The scale of the EM rally, however, has raised concerns that investors are not receiving enough returns for the risks they are taking.

Even if VietinBank were to attempt a US dollar offering, a banker familiar with the discussions expressed concern that the potential yield on a new issue could already be too tight for investors to accept. The bank's 2017s were trading at a record high of 103.06/103.14 last Friday, yielding 3.59/3.49 percent, according to Thomson Reuters data.

"These bonds are trading so tight that investors may not think that a little over 3 percent is attractive for a Single B name," the banker said.

Banks will pay more than the sovereign, but are far from being risk free. Many have depleted their Tier 1 capitals to fuel high growth and local Tier 2 issues are on the cards as they look to replenish capital ratios.

Vietnamese banks operate under Basel I and are subject to a minimum 9 percent total capital adequacy ratio and a minimum 4.5 percent Tier 1 ratio. Last year, the T1 ratios of BIDV, VietinBank and Vietcombank's stood at 5.8 percent, 7.6 percent and 9.04 percent, respectively.

"There certainly are elevated credit risks in these banks because of shrinking capital buffers and asset quality challenges," said Tarzimanov.

"Investors would be interested to find out how the issuers plan to raise capital.

A lot of government-linked banks have announced capital-raising plans or are thinking of it, so a successful execution would be credit positive for these banks."