Market sees new clean bill of health

In a T-bill auction on September 10, the Treasury sold all VND1 trillion ($48.3 million) worth of 52-week notes it offered. The winning rate slightly declined to 8.45 per cent, down from 8.5 per cent in previous auctions.

Total registering volume also exceeded the offering volume, reaching VND1.25 trillion ($60.4 million), while the registering interest rates ranged from 8.48 to 8.9 per cent.

Although only one bidder won the auction out of two registered bidders, the result was an improvement compared with the previous auction on August 31. Then, only a quarter of the VND1 trillion ($48.3 million) offered was sold.

Meanwhile in the bond market, Vietnam Development Bank  sold VND700 billion ($33.8 million) worth of two- and three-year government-guaranteed bonds in an auction held on September 11, after failing to sell any of the securities in August. The winning rates were 10 and 10.1 per cent, respectively.

Previously, the bond and T-bill market suffered three quiet weeks following the arrests in late August of Asia Commercial Bank’s (ACB) co-founder Nguyen Duc Kien and its CEO Ly Xuan Hai. Most banks at that time attempted to safeguard their liquidity, resulting in a sharp decline of funds on the interbank market. The interbank market overnight interest rate at that time peaked at 7 per cent.

“In general, the commercial banks system is quite stable,” said Vu Anh Duc, deputy head of Vietinbank’s Treasury Department. “There has been a small impact [from the bankers’ arrests], but this has passed,” Duc told VIR.

In the past week, interest rates on interbank market have been quite stable, with overnight rates skimming at some 4.5-5 per cent. ACB had started lending in this market.

“We expect that a growing demand for bonds from banks given their low credit growth would result in a further improvement in State Treasury bonds’ success ratio,” stated Vietcombank Securities in a note to clients.

“We still keep our view that investors’ appetite for risk-free short-term bills and bonds remain high and that State Treasury bills would be sold out quickly in the coming weeks when liquidity of the banking system is quite stable in the short term,” it said.

However, industry experts said the bond and T-bills market would struggle  in the fourth quarter due to lower demand for the securities in that season. Interest rates late in the year commonly trend up, resulting in the price of bonds trending down and discouraging bond investments in that period. Meanwhile, deposit activities and people’s cash withdrawal seasonally accelerate, so banks have to enhance their liquidity.

Sources from several banks said they were reducing demand for bonds. “Our bank had purchased quite enough bonds in the first six months of this year. It is now the time to sell out the holds to realise profits and get cash to enhance liquidity,” said the treasury manager of a major state-owned bank who declined to be named.

Duc expected that bond supply would be boosted up in secondary market in the fourth quarter, as banks attempting to realise profit from the bonds the purchased early this year.

“If banks only use bonds for open market operations, it will be inefficient as they can get only short-term benefits,” said Duc. “The most efficient way at the moment is to partly liquidate the bonds to get cash. Bond supplies will increase in this fourth quarter.”