Vietcombank buys $1 billion in Government bonds

Vietcombank buys Government bonds worth US$1 billion from the Finance Ministry.Photo kinhdoanhnet.vn

The bonds have terms of five to 10 years and coupon interest rates hovering around 4.8 per cent per year, which is equivalent to the rates of bonds sold by the government in international markets late last year, and significantly higher than the rates of the US dollar currently deposited at Vietnamese banks.

This is the first time the government has issued bonds in foreign currencies separately for a bank and for such a huge value. According to a source of the online newspaper, there are several reasons why the issuance was not in dong.

Firstly, the government needed foreign currencies for its spending, and Vietcombank had the most abundant foreign currency reserve among local banks.

Secondly, taking advantage of a domestically available source of foreign currencies is better than seeking foreign loans, as it will help the country avoid "a shock" in exchange rates that can be possibly caused by the appreciation of the dong.

Thirdly, bonds in dong had remained unsalable for more than two years. During April, Government bonds worth VND8.5 trillion ($404.76 million) were sold through auctions in the primary market, for about half of the previous month's value.

Vietcombank Chairman Nghiem Xuan Thanh told a shareholders' meeting on April 24: "We recently completed an enormous transaction, whose value amounted to more than VND20 trillion (about $1 billion)." Refusing to reveal further details, he affirmed this was a long-term and secure investment with high profitability.

Le Hong Quang from the Vietcombank communications department told Biz Hub over the phone today that he was yet to confirm whether the VND20-trillion deal was the bond transaction that the bank had just finished.

Thoi bao Kinh te Sai Gon assessed that the transaction has been "a clever move" as it has helped consolidate the state budget balance, which was challenged by a contracting revenue, and at the same time also benefited the bank.

Meanwhile, Vietcombank will certainly be stricter in regulating its foreign currency reserve, a sizable portion of which had been mobilised in a short period of time for implementing the deal, they noted.

On April 24, Thanh said the bank was looking for a merger partner as part of the efforts to impulse the national banking reform process and for consolidating its own strength to become the leading bank in Viet Nam in the future.

This year, the bank targeted a pre-tax profit of VND5.90 trillion (US$280.95 million), equivalent to last year's figure, and a dividend rate of 10 per cent. It also aimed to report a deposit growth of 12 per cent, lending a growth of 13 per cent and a bad debt ratio of below 2.5 per cent.

Its total asset value is expected to grow 11.5 per cent year-on-year to VND643 trillion ($30.62 billion) in 2015.