Commercial banks reduce bond purchases

For instance, no investor bid in the two bond issuance campaigns launched by the Bank for Social Policies in mid and late July.

Meanwhile, according to the Hanoi Stock Exchange, the volume of successfully issued government bonds on July 28 was only VND450 billion, which accounted for just 22.5 per cent of the total value of the bonds put out for the bid.

After a period of busily trading in the bond market, commercial banks seem to have halted their purchases.

According to Dominic Scriven, general director of Dragon Capital, an investment fund management company, banks previously bought big volumes of bonds because they had idle capital which they could not lend due to the limitation in the credit growth rate.

Now that they have purchased the bonds, banks have to reconsider where to invest their usable capital.

They need to take measures to protect their liquidity, especially after Fitch Ratings, a well known credit rating firm, has warned about the liquidity of Vietnamese banks, Scriven said.

Though assigning the Long-Term Foreign-Currency Issuer Default Ratings (LTFC IDR) of 'B' with ‘stable outlook’ for 4 Vietnamese banks - Vietnam Bank for Agriculture and Rural Development (Agribank), Vietnam Joint-Stock Commercial Bank for Industry and Trade (Vietinbank), Asia Commercial Bank (ACB) and Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) - Fitch Ratings last month warned them of dollar liquidity constrains.

Scriven’s opinion is shared by the deputy general director of a state owned bank who said that after purchasing a certain volume of bonds, his bank and many other banks need to reconsider how they can invest efficiently.

"We’ll have to consider lending or injecting money in other profitable investment deals," said the banker, who wished to remain unnamed.

According to the Hanoi Stock Exchange, the interest rates on the bonds that banks have purchase are around 12.1-13.3 per cent per year, which are lower than the deposit interest rates banks are paying to mobilize capital from the public.

"With such bond interest rates, the banks, which have to mobilize money from the public to buy bonds, will certainly suffer losses," another banker who wanted to remain unnamed said.

Also according to this banker, the level of loss from bond trading would rise, if current interest rates do not drop. "The inflation rate in July kept rising. So I don’t see any sign showing interest rates will fall in the time to come," he said.

Nguyen Quang Trung, deputy general director of the Hanoi Stock Exchange, said that the bond interest rate is considered the benchmark interest rate, so it isn’t likely to rise because the government is planning to lower market interest rates.

"Capital mobilisation depends on the cash flow, and if the cash flow is weak, interest rates need to be high. Meanwhile, in such conditions, we wish to see interest rates go down," Trung said. 

However, Trung said that the decrease in the bond purchases was only temporary and did not mean bonds, in the long run, will lose their appeal as a safe investment channel.

Vietnam plans to auction VND2-4 trillion government bonds in August and September this year, said the Hanoi Stock Exchange.