Government bonds become darling of foreign investors

Recently government bonds have seen strong foreign buying despite the facts that the dollar is expected to continue appreciating due to the US’s plan to raise interest rates a few more times in the near future and that Viet Nam does not have incentives to attract foreign investment in its bonds.

Market observers also said the government bond market liquidity has improved a great deal thanks to the investments from abroad.

Foreign investors bought VND11 trillion (US$484.6 million) worth of the bonds in the first five months of the year, according to the National Financial Supervisory Committee.

Data from VP Bank Securities Company shows that between June 23 and 26 foreign purchases of government bonds on the secondary market were worth VND61.647 trillion, an increase of 34.8 per cent over the previous week.

The Sai Gon Securities Company said that in the first half of the year foreigners bought government bonds worth VND14.9 trillion (US$656.4 million), an increase of VND1.7 trillion ($74.9 million) over the same period last year.

The chief of a foreign-invested fund management company, who asked not to be named, said the biggest concern for foreign investors buying government bonds was the depreciation of the dong against the greenback.

However, the value of the dollar had not changed much though the US central bank has hiked rates several times.

The dollar appreciated slightly against the dong after the US raised the rate once in mid-June, but soon declined.

Recently the State Bank of Viet Nam allowed the dong to decline slightly to VND22,725 per dollar.

It was facilitated in this by the downward trend in inflation and the exchange rate since the beginning of this year, thus creating conditions for the central bank to improve the foreign exchange reserves and to inject liquidity into the market without resorting to open market operations and not putting pressure on the exchange rate.

An executive at a major bank in HCM City said that with the many positive aspects in the economy the dong-dollar exchange rate is likely to remain steady until the year-end unless there are unexpected extraneous factors.

To take advantage of this opportunity, he said, the Ministry of Finance is drafting a plan with many incentives to attract foreign funds into the bond market.

If they are offered tax and fee breaks, foreign investors would be happy to enter the bond market, he said.

Foreign banks: coming or going?

Last week the Viet Nam International Bank (VIB) and Commonwealth Bank of Australia (CBA) announced that the former would buy the latter’s Ho Chi Minh City branch.

VIB will acquire all the assets and liabilities of the CBA branch, and the transition process will take several months.

The Australian bank had bought strategic stakes in VIB in 2009 and 2010 and retains a 20 per cent ownership.

It had opened the branch in 2008.

CBA will continue to retain its Ha Noi representative office, which was established in 1994 to “serve as a liaison with government bodies, financial institutions and corporations in Vietnam.”

Speaking about the sale, Steve Ellis, general manager of Viet Nam Commonwealth Bank, said, “It demonstrates the confidence Commonwealth Bank has in the Viet Nam International Bank to continue to provide high-quality service to our customers.”

CBA is not the first bank to want to sell a part of its business after several years of operations in Viet Nam.

Australian-owned ANZ has also agreed in principle to sell its retail business in Viet Nam to South Korea’s Shinhan Bank, part of its broader retreat from Asian retail banking.

Its retail business serves 125,000 customers in Viet Nam and includes A$320m (US$240m) in lending assets and A$800m in deposits.

After Viet Nam became a member of the World Trade Organization, the number of foreign banks investing in the Vietnamese market increased rapidly, particularly after Viet Nam opened up the banking market to fully-invested banks in 2007.

According to the State Bank of Viet Nam (SBV), by late 2015 the country had 50 foreign-invested branches and 50 representative offices of foreign credit institutions.

Late last year the SBV licensed Singapore’s United Overseas Bank (UOB) to incorporate a bank in Viet Nam.

UOB takes the number of fully foreign-invested banks in Viet Nam to nine, with the others being South Korea’s Woori Bank and Shinhan Bank; Malaysia’s Public Bank Berhad, CIMB, and Hong Leong Bank; HSBC; Standard Chartered Bank, and ANZ Bank.

Analysts say that Viet Nam, with its more than 90 million population, has always been an attractive market for foreign investors in the retail and finance and banking sectors.

The other factor that makes the financial sector attractive is the small number of people who use financial products and services, particularly in rural areas, as yet. This translates into a big opportunity for foreign banks to exploit as more consumers enter the market.

Viet Nam is a member of the ASEAN Economic Community (AEC), meaning that when they invest in Viet Nam foreign investors automatically have access to the other member countries of the AEC, a bloc that has the world’s third biggest population of 600 million.

Viet Nam has signed free trade agreements with many countries around the world. This has encouraged more foreign investors to come to Viet Nam to take advantage of the benefits arising from those agreements.

The increase in the number of foreign businesses in Viet Nam has enlarged the market for international-standard financial services, thus improving the attractiveness of the Vietnamese financial market.

The high interest rates and spreads -- the difference between the borrowing and lending interest rates – in the country have also been a magnet for foreign lenders.

But then why are some foreign banks like CBA and ANZ headed for the exit?

Experts say this is because the operation of foreign branches and fully-invested foreign banks is very expensive.

Despite their advantages in terms of finance and technology, foreign banks cannot operate like domestic lenders because they have to comply with certain regulations.

They also have difficulty in expanding their retail business, considered the most lucrative, because they lack things like ATMs and a deep understanding of Vietnamese culture and customers, all of which are necessary to profitably do business here.

Besides, the prolonged economic turndown around the world in recent years has badly affected many of their parent companies and so foreign businesses in Viet Nam had to shut shop.

But the pullout of some foreign banks should not be considered a trend because they are global companies whose strategies in individual countries are not driven just by local conditions.

Govt strengthens oversight of kids’ milk products

The Ministry of Industry and Trade has issued a circular that will take effect on August 10 requiring milk processors, traders and importers to inform authorities in advance when they make price hikes of 5 per cent or more for dairy products for children aged below six.

In fact, they would need to re-register their prices rather than merely inform authorities.

Now they can fix prices and then inform authorities.

After the circular takes effect distributors must also publicise their retail prices.

The Ministry of Health is set to issue a list of dairy products and supplements for children under six to which the circular will be applicable.