Commercial banks buy bonds to avoid capital stagnancy
The recent tender for G-bonds issued by State Treasury was successful as raising two trillion dong with the winning coupon rate of 10.90 percent pa. 20 members joined the tender with the lawful bidding volume of 7.825 trillion dong.
The information, according to some experts, is very positive because the government had more funding to carry out investment projects or pay for public spending and avoid a part of foreign debts. In addition, the winning rate of 10.92 percent for two-year bonds showed the investors’ higher faith in Vietnam’s economic stabilisation.
However, in other countries, issuing government and corporate bonds aims at the public and investment institutions like retirement salary fund and insurance companies instead of banks. But in Vietnam, commercial banks are major investors buying G-bonds. It is worried that too many commercial banks of these 20 participants in the bond tender proved the banks falling in the capital stagnancy and facing difficulties in enhancing lending (institutions are still hesitant in taking bank loans because of high lending rates). To avoid the capital stagnancy, commercial banks joined G-bond tenders to enjoy higher yield rates instead of depositing at SBV.
Banks have the functions of centralising and re-distributing capital source for the society and economy. But in the current context, they gathered and lent capital to the government, which was not a good signal.
More frankly, one investor said that at the same time as G-bonds were issued, some commercial banks raised deposit rates of the dong to attract idle capital from residents and institutions to buy G-bonds.
When joining the bond market, commercial banks can increase their volume of valuable papers as mortgage for borrowing capital on the open market operations (OMO). Commercial banks raise the dong at 11.5 percent pa, buy G-bonds at 11.9 percent/year and then borrow from OMO with the low interest rate of 7-9 percent pa. After that, they will take that capital source (borrowed from OMO) to provide loans at 13.5-15 percent pa.
Some specialists said, knowing the list of bidders registering to join G-bond tenders and their purpose in G-bond purchase will become the good information to predict the psychology and movements of the finance-monetary market.
Category: Finance
