Chairwoman of the Vietnam Bond Market Association Nguyen Thi Kim Oanh (Photo: VNA) Hanoi (VNA) - In recent years, the Government bond market hasbecome an important capital mobilisation channel for Vietnam. However, thescale of the country’s bond market is modest compared to national economicscale and to other regional countries.
Nguyen Thi Kim Oanh, chairwoman of the Vietnam Bond Market Association (VBMA),speaks to Vietnam News Agency about proposals to make the Government bondmarket more attractive.
According to a report of the Hanoi Stock Exchange (HNX), Government bondmobilisation dropped sharply last year in terms of value against 2017. Whatwere the main reasons for this?
The total value of Government bonds issued last year stood at 196.8trillion VND (8.46 billion USD), a year-on-year reduction of 19.35 percent.
The main cause of reduction in value of Government bond mobilisation came fromslow disbursement of public investment. According to the Ministry of Finance,disbursement by ministries, sectors and departments at central and localadministrations in the first 11 months of 2018 only hit 59.9 percent of theyearly plan.
The low disbursement was due to factors like topography, weather and naturaldisasters as well as obstacles related to site clearance, investors’ abilityand policies.
However, it should be recognised that capital mobilised from Government bondsis a loan for economic development and debt burden. If the State budget balanceis consolidated by increased tax collection, the State Treasury does not needto complete the Government bond mobilisation plan set at the beginning of theyear and the adjusted mobilisation near the end of the year.
On the other hand, in the last six months of 2018, to stabilise the exchangerate in the context of complicated international markets, the State Bank of Vietnamimplemented a tight monetary policy. That made the interest rate rise sharplyon the secondary market.
Meanwhile, the State Treasury has not had much pressure to issue Governmentbonds so the interest rates were not adjusted in line with the market. The gapbetween interest rates on the primary and secondary market was quite large atabout 30-70 basis points (BPS). At the same time, the liquidity of the bankingsystem in 2018 was quite stressful, forcing the central bank to support itthrough open market operations.
This forced commercial banks to cut cash flow into the Government bond marketto ensure liquidity and focus on more effective investment channels. This waswhy investors, mainly commercial banks and fund management companies, were notinterested in investing in Government bonds in the primary market.
What’s your opinion on Vietnam’s Government bond market compared with otherregional ones?
Vietnam’s Government bond (G-bond) market was established in 2000 and sincethe nation had a bond trading system in 2009, the Government bond market hasdeveloped rapidly in scale. Government bonds have become an increasinglyimportant and effective capital mobilisation channel for development.
As of July last year, the domestic bond market accounted for 39.9 percent of2017’s gross domestic product (GDP), while that of the G-bond market was 29.2 percent.
This was strong growth of the domestic bond market compared with 4.5 percent in2003.
However, the scale of Vietnam’s bond market is still small compared topotential of the domestic economy and to other markets in the region.
The scale of Malaysia’s bond market is 95 percent of its GDP (G-bond marketaccounts for 49.7 percent of GDP), that in Singapore is 81.1 percent of GDP(G-bond market: 49.6 percent), Thailand 73 percent of GDP (G-bond market: 53 percent),the Republic of Korea 124.6 percent of GDP (G-bond market: 73.6 percent), andChina 68.8 percent of GDP (G-bond market: 49.8 percent).
The average trading value per session in Vietnam’s bond market has reached 10.4trillion VND, much lower than in markets like Singapore or the RoK.
The structure of investors in the domestic bond market has changed thanks tothe increase in the number of investors and the diversification of kinds ofinvestors. Besides, the holding rate of commercial banks has reduced to asimilar rate in many countries but other institutional investors, includinginsurance companies, pension funds and mutual funds, is still inadequate.
The reason for that situation is that long-term savings from insurancecompanies and compulsory retirement funds are still limited. Market makers havemainly operated on the primary market, their interest in the secondary marketis still limited. We need support from the Ministry of Finance and Statemanagement agencies to expand markets, diversify products and removedifficulties for investors.
What should Vietnam do to increase the attractiveness of the G-bond market?
To develop the secondary market of G-bond, Vietnam needs synchronouspolicies stabilising the political environment as well as the money and foreignexchange markets. At the same time, it should diversify bond maturities, includingshort-term bonds, to harmonise cash flows and create standard interest curvesand full reference interest rates.
In addition, Vietnam should promote the development of the secondary market.
Vietnam should also issue new bond products and bond lending operationsaccording to the roadmap on building guidelines of implementing the Law onPublic Debt Management in 2017. It needs to develop new products such asfloating rate bonds and bond derivatives.
We also need to improve policies to expand investor base and attract foreigninvestment by establishing funds such as retirement and bond investment.
The organisation of bond issuance needs to follow the market and investors’demand and focus on organising bidding through the Hanoi Stock Exchange (HNX)to ensure continuity of the market. Interest rate policy is governed accordingto market rules and is consistent with the development of the bond and moneymarket.
Information of the Government bond market should be regularly updated onwebsites of the State Treasury, HNX and the Vietnam Bond Market Association,giving investors sufficient information about mechanisms, policies, plans,bidding schedules, issuance and payment results.
In addition, Vietnam should complete the legal provisions on payment, issuanceand bond trading activities. We also need liquidity support mechanisms formarket makers in the primary and secondary markets. -VNA
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