Standard Chartered Bank’s research group has announced the report on Vietnamese bond market, concerning some adequacies and giving explanation and analysis on movements and the development tendency of the bond market.
According to the report, the fact is that Vietnamese government set many big targets while the real figures were not like expectation. Particularly, in 2008, initially the State Treasury planned to issue about 90 trillion dong of bonds but factually only 49 trillion dong was raised from the capital market. The similar situation took place when the government only mobilised 2.6 trillion dong against the previously planned issue of 22 trillion dong of G-bonds during the first quarter of 2009 because of three reasons as follow:
Firstly, G-bond coupon rate was limited under the state’s ceiling level applied on bond tender via the primary market. Since the beginning of this year, the government established a coupon rate ceiling of 7% pa for each bond auction. Meanwhile, investors still bid to take bonds with a coupon rate of the secondary market. Thus, the government’s ceiling coupon rate could not attract investors. In theory, the government’s ceiling coupon rate of bonds will not only reduce the costs for capital mobilisation but also make G-bonds more attractive and help drive the capital flow from the credit market, citing the report.
Secondly, although the government had raised capital for reserve, the disbursement of capital sourced from G-bonds has not yet been implemented absolutely. The State Treasury reported raising more than 300 trillion dong from 2003 to 2008 but only 65 trillion dong of which has been actualised in the period. With a high inflation during these five years, the government decided not to halt construction of some projects while the economic was overheating. Therefore, the government’s purpose in raising the capital reserve for 2009 is still unclear.
Thirdly, while the transparency of the dong is tightened up, that of US dollar was improved as investors are paying more attention to the keeping of sustainable currencies. So, G-bonds in US dollar are very attractive as for all investors.
Vietnamese government recently decided to organise a tender for US$300 million of G-bonds for the third phase of 2009 with attractive coupon rates (particularly 3% pa for a term of one-year, 3.2% pa for 2 years and 3.6% for three-year bonds) in the domestic market. Standard Chartered Bank’s report noted, the market’s coupon rate of shorter bonds is still maintained at high.
After SBV loosened regulations on bond coupon rates in early months of 2009, the bond market witnessed considerable changes. 2-5 year bonds escaped from the low coupon rates to reach 7.6% and 7.95% per annum correspondingly and now are traded at 100 basic points thanks to the tightening up of transparency of G-bonds.
Standard Chartered analysts assessed that State Bank of Vietnam (SBV) intervened the bond market through open market operations. Typically the central bank pumped 17.2 trillion dong into the banking system in the last half of February 2009, which helped reduce the reverse repo rate (RRP) down to 7.5% that previously had stood at 8% before Tet Lunar New Year.
In addition, SBV also cut down the below 1-year deposit reserve ratio from 5% to 3% in the end of February The move helped liberalise and pour extra 20-30 trillion dong into the banking system.
Diversified policies of SBV have led to the downward trend of interbank interest rate.
As analysed, Vietnamese government set the 2009 credit growth of 20% as the highest priority. To reach the target, the government removed the interest rate ceiling of consumer loans, allowed SMEs to access subsidised loans. More importance is that the first disbursement volume of US$1 billion among the government’s financial stimulus package of US$6 billion was used to provide low-cost credit items to some particular economic sectors. The initial occurrence of the interest rate subsidisation programme affected negatively to the bond market.
The growth of outstanding loans of the whole banking system in February was only 0.23% while the figure of January was posted at 0.52% (month on month). Thus, strong increase in outstanding loans of credit institutions could be a temporary movement, according to the foreign bank’s analysis.