High lending rates might be discouraging enterprises from borrowing, but improved liquidity has seen banks jumping on board the government bond band wagon.
The government bond auction on May 26 finished with all one trillion dong ($48 million) worth of five-year paper on offer changing hand and 905 billion dong ($44 million) worth of three-year bond was taken from the one trillion dong ($48 million) on offer.
A Vietcombank official said the coupon rates were not “very attractive”, but borrowing demand was going down because of high lending rates.
“As the State Bank is buying a large amount of dollars from local banks, those local banks have a sizeable supply of dong. In this situation, buying government bonds deserves consideration,” the source said.
The coupon rate cap set for three-year paper was 13.3 per cent per year, while the level for five-year bonds was 13.2 per cent, per year.
Last week, State Bank governor Nguyen Van Giau admitted the authority was buying dollars from local lenders, and for some days the buying volume even reached $200 million.
According to State Bank data, by May 23, credit growth in the system stood at 6.2 per cent, compared to the under-20-per-cent target for the whole year.
Nguyen Thi Kim Thanh, head of the central bank’s Banking Strategy Institute, said that the bond coupon rate might see an upward movement in future on the back of ramping inflation.
“High inflation and tightened monetary policy may push bond coupons up a bit further,” added Thanh.
Vietnam’s consumer price index (CPI) in May was up 19.78 per cent year-on-year.
On April 29, with Decision No.929/2011/QD-NHNN, the State Bank decided to raise both the refinancing rate and overnight lending rate by 1 per cent to 14 per cent, repeating a similar move in March.
Accordingly, in May, the State Bank twice decided to lift seven-day lending rate to local banks via the open market operations (OMO) window from 13 per cent, per year to 15 per cent, per year.
Thanh added that with government bond yield at around 13 per cent per year, it would not be profitable to borrow from the State Bank at a rate of 15 per cent, per year.
The authority is lending via OMOs to local banks with collateral being valuable paper such as government bonds.