Lenders still wary of state bonds

Last Thursday, March 17, only VND30 billion ($1.4 million) worth of 10-year bonds was taken at a yield of 11.5 per cent, per year. Meanwhile, the State Treasury put VND1 trillion ($48.3 million) worth of three-year bonds, VND1 trillion of five-year papers and another VND1 trillion of 10-year papers on the auction table.

A Vietcombank executive said that the bond yield would go up in near future and local lenders were waiting to see how inflation rolled out before making a decision.

Nationwide the consumer price index (CPI) reached 2.09 per cent month-on-month in February, driving the year-on-year figure to 12.31 per cent, the highest level since February, 2009. Meanwhile, Hanoi and Ho Chi Minh City’s statistic offices revealed that March’s CPI was 2.41 and 2.2 per cent month-on-month respectively led by transportation, household appliances and food prices.

In mid-February, the Ministry of Finance increased fuel prices by 17-24 per cent. In response to inflationary pressures, the government confirmed its strong will to control inflation and restore confidence via cutting credit growth target from 23 to under 20 per cent for 2011.

Nguyen Dai Lai, vice head of the central bank’s Credit Information Centre, said that banks’ borrowing demand from the open market operations (OMO) window dropped following raised costs.

“Thus, banks have less demand to buy government bonds,” said Lai.

On February 23, the State Bank decided to lift the seven-day lending rate to local banks via OMOs from 11 to 12 per cent, per year.

It was the fourth rise since December, 2010 from the long-lasting 7 per cent, per year.

Vo Thi Sanh, head of BIDV’s asset-liabilities division, admitted that with government bond yield at around 11 per cent per year, it would not be profitable to borrow from authority with rate of 12 per cent, per year.

Currently, with collateral being valuable papers such as government bonds, the central bank is lending to local banks at 12 per cent, per year. On February 24, the State Treasury also sold only VND825 billion ($40 million) worth of government bonds out of VND6 trillion ($290 million) on offer. Winning yields were 11 per cent, per year and 11.39 per cent, per year for three and five-year papers.

Meanwhile, in February 11’s auction, VND4.65 trillion ($224.6 million) worth of two, three and five-year papers were sold against VND5 trillion ($241.5 million) on offer. In 2011, the National Assembly set a target of government bond issuance at VND45 trillion ($2.17 billion).