Non-interest bidding for bills approved

Smaller banks will benefit from the new bidding method

Previously, only interest based bidding was permitted, however, last week’s decision limits non-interest bidding to 30 per cent of the bills issued.
In conventional interest-based bidding, the bills are allocated according to the level of interest offered by credit institutions, from highest to lowest, providing the offered interest rates do not exceed the ceiling rate set by the central bank.
However, as much as 30 per cent of the total bills government plans to issue will be reserved for non-interest based bidding. This means the government will sell bills even to those who cannot set a certain interest rate for them.
The State Bank’s decision comes after months of pressure from the finance ministry, who had been insisting non-interest bidding would encourage the participation of small and joint-stock banks. Until recently, the State Bank saw things in a very different light.
“The country’s bidding market for treasury bills and bonds is a bit gloomy these days as it is dominated by big state-owned credit institutions and the participation of small players like joint-stock commercial banks, branches of foreign banks is almost zero,” said Nguyen Quang Thep, the head of the ministry’s bidding panel for treasury bonds.
“One of the main reasons is the incapability of those joint-stock banks to offer an interest rate as competitive as the state-owned banks’ in interest-based bidding,” Thep said.
“Small banks do not have as much idle capital as state-owned banks and, as such, it is difficult for them to offer interest rates high enough.”
State Bank deputy governor Tran Minh Tuan said the Bank had always turned down the ministry’s requests to start non-interest bidding because the country’s monetary market was not mature enough.
The State Bank is appointed by the government to act as the agent for the ministry in issuing and settling governmental eligible papers like treasury bills, treasury bonds, government bonds.
As a compromise, early this year the State Bank agreed to allow non-interest based bidding for government bonds in foreign currencies, and now for treasury bills in dong.
The Bank has yet to allow non-interest based bidding in government and treasury bonds in dong.
Thep said once the State Bank allowed non-interest based bidding for treasury and government bonds in dong, more joint-stock banks would surely join the bonds market.
Statistics from the finance ministry show the total value of government and treasury bonds in dong won by state-owned commercial banks accounted for 99.1 per cent and 99.6 per cent of the total bonds issued in 2002 and, respectively.
In 2002, only two joint-stock banks, Eximbank and Phuong Nam Commercial Bank, took part in government bond bidding.
In 2003, two other joint-stock banks joined the game: the Asian Commercial Bank (ACB) and Techcombank. Still, the total bonds these banks won accounted for just 1 per cent.