Government bonds bring double profit to bankers
28-AUG-2008 Intellasia | Vietnamnet
Aug 28, 2008 - 7:00:00 AM
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Vietnam's bond market now is understood as the government bond market as the government bond is the main commodity on the market. Commercial banks prove to be the institutions that hold most of the bonds, according to Nguyen Doan Hung, deputy Chair of the State Securities Commission.
The liquidity of bonds was very low in the first six months of the year. Bond holders tried to sell out in June and July, as they expected higher bond yield in the context of high inflation, high interest rates and high exchange rates and the difficulties of the monetary market. Foreign investors tried to sell bonds with high discount rates, up to 28%.
The statistics released by euro Capital securities company showed that foreign investors' bond net sales reached US$570 million in the first six months of the year. Meanwhile, the Hanoi Securities Trading Centre (HASTC) said that the average net sales in the period between mid June and mid July were 245.56 billion dong per trading session.
However, though they once tried to sell bonds, investors are now trying to purchase the securities, and commercial banks prove to be the biggest buyers.
In the first six months of 2008, commercial banks faced short-term liquidity problems as the capital mobilised from the public was on the decrease. However, state-owned banks could make capital transactions on the open market at low interest rates of 8-14% per annum (the interbank market interest rate once hit 30-35% per annum) because they held a lot of government bonds. Meanwhile, joint-stock banks were nearly outsiders in the market as they did not have valuable government papers and had to seek capital in the interbank market at high interest rates.
Joint-stock banks have learnt a lesson: While government bonds bring low interest rates, they prove to be an effective tool for banks to prevent risks when they have difficulties in liquidity.
Banks have pushed up purchasing government bonds which can help them more easily access capital in the open market. Hung said that in the bond secondary market, a lot of players are commercial banks. They received opportunities to purchase government bonds at low prices when institutions tried to sell bonds out.
The banks could purchase bonds at prices lower than face value, with which they did not have bear minus interest rates due to high inflation. Meanwhile, if banks use the bonds to make transactions on the open market, they will be able to borrow money at low interest rates. As such, holding bonds proves to bring double profit.
The recent government bond auctions attracted the special attention of investors. On August 22, 780 billion dong worth of 2-3-year bonds was sold.
The improvement of the government bond liquidity shows that people now have confidence in the long-term development of the national economy. There are 479 bonds items listed at HASTC which have the total face value of 186,000 billion dong.
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