Vietnam Time

8/23/2018 12:19:34 PM

G-bonds become important capital mobilisation tool: Official

Efforts of the Ministry of Finance to restructure the Government bond market have turned the bonds into an important capital mobilisation channel for national economic development, stated Phan Thi Thu Hien, head of the ministry’s Finance-Banking Department.

Illustrative photo. (Source: VNA)

Speaking to the media on August 22, Hien said that before 2015, despite the ministry’s efforts in building legal framework for G-bond market development, it faced many big problems, including the small scale of the market (accounting for only 13.84 per cent of GDP in 2014), the dominance of commercial banks in the market and bonds’ short terms.

To tackle the issue, the Government directed the Ministry of Finance to apply measures to reform the market and restructure public debt, lengthening the G-bond terms and diversifying investors.

As of July 2018, commercial banks owned 51.1 per cent of G-bonds, much lower than the ratio of 79.7 per cent in 2014. Other investors included the Vietnam Social Security, insurance companies and foreign investors.

G-bond terms have been expanded to 5-30 years. The diversity helped increase the scale of the secondary market to about VND 9 trillion (USD 387 million) per session in 2017, much higher than 1-2 trillion VND per session in 2011-2013. In the first seven months of 2018, the average value of each transaction session was VND 10.4 trillion (USD 447.2 million) per session, noted Hien.

Meanwhile, the ministry has focused on building and completing the legal framework as a foundation for the formation and development of long-term investors, creating sustainable demand for the market, targeting voluntary pension funds, insurance companies and foreign investors, said Hien, highlighting that the G-bond market no longer depends on banks.

She said banks’ investment in G-bonds does not affect their lending activities, but helps them preserve their capital and optimise profits from G-bond trading. G-bonds are also a tool for the State Bank of Vietnam to manage monetary policies.

Hien said that in late 2017, investment in G-bonds accounted for 7.28 per cent of total assets of the banking system, while credit outstanding balance made up 65 per cent of the total, or 130 per cent of the GDP.

Comparing the G-bond markets in Vietnam and other regional countries, Hien said the scale of Vietnamese market is still modest and has yet to hit its potential.

As of July this year, outstanding balance of the domestic bond market was 39.9 per cent of 2017’s GDP, while that of the G-bond market was 29.2 per cent.

Looking outside, the scale of bond market of Malaysia is 95 per cent of its GDP, that in Thailand is 73 percent, the Republic of Korea is 124.6 per cent and China is 68.8 per cent.

In terms of liquidity, the average value of each transaction session of Vietnam is similar to Thailand, but much lower than the Republic of Korea and Singapore (about USD 1.4 billion per session).

Hien said the reason behind the situation is the small scale of the domestic market due to lower economic development level, and the limited role of the secondary market, as well as the old technology infrastructure system.

In the future, it is necessary to develop new products in the bond market, better operate the derivative stock market and apply measures to increase liquidity of the market and improve transaction value.

Hien revealed that in 2019, the Ministry of Finance will concentrate on developing market makers bearing full rights and obligations in accordance with international practice, while expanding investors by asking the Vietnam Social Security to get involved more deeply in G-bond trading, luring more long-term and foreign investors and developing more voluntary pension funds and products.

Nearly 4.5 billion USD worth of G-bonds raised so far this year

A total of VND 104.2 trillion (USD 4.46 billion) had been raised this year by the State Treasury of Vietnam via auctions of Government bonds at the Hanoi Stock Exchange as of August 22.

At an auction this week, the State Treasury mobilised VND 4.1 trillion (USD 175.5 million) worth of 10-year and 15-year Government bonds.

The auction had planned to sell VND 5.5 trillion (USD 235.5 million) worth of G-bonds with a 5-year, 7-year, 10-year, 15-year and 30-year maturity.

Bonds with 10-year maturity raised VND 1.5 trillion (USD 64.2 million) with annual interest rate of 4.6 per cent, up 0.03 per cent from the previous auction on August 15.

A sub-session auction of 10-year bonds drew VND 600 billion (USD 25.7 million) with yearly interest rate of 4.6 per cent.

Those with 15-year term attracted VND 1.4 trillion (USD 59.9 million) with an annual interest rate of 4.87 per cent, up 0.03 per cent in comparison with the rate of the previous auction.

As many as VND 600 billion (USD 25.8 million) was mobilised from 15-year bonds at the sub-session auction with an interest rate of 4.87 per cent per year.

No bonds of five-year, seven-year and 30-year terms were sold at this auction.

Last year, Vietnam sold some VND 159.9 trillion (USD 6.84 billion), worth of G-bonds with an average maturity of 13.52 years and annual interest averaging 6.07 per cent, down 0.2 percentage points against 2016./.

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