Bonds in demand

Illustrative photo

In 2022, the State Treasury planned to issue VND 400,000 bln in government bonds and later adjusted these to nearly half, bringing them down to VND 215,000 bln. As a result, the total issuance value reached VND 214,722 bln, around 99.9 percent after the adjusted plan. In 2023, the Ministry of Finance assigned the task of issuing government bonds to the State Treasury for VND 400,000 bln, equal to that in 2022 and nearly 1.9 times higher than the adjusted plan.

At the beginning of the year, the State Treasury said that the mobilization of government bonds would be challenging because the world situation continues to be unpredictable, and the domestic economy is also facing difficulty.

However, in the past few months, government bond mobilization has prospered greatly. According to statistics of the Vietnam Bond Market Association (VBMA), in the first quarter, the State Treasury held 39 auctions of government bonds with a total value of VND 131,250 bln, of which the winning value was VND 104,873 bln, and the bid calling rate was nearly 80 percent. At this level, the total winning value reached 26 percent of the yearly plan and 97 percent of the first quarter plan at VND 108,000 bln.

Continuing in April and May, the State Treasury held 31 government bond auction sessions, with total winning value reaching VND 57,600 bln, and completing 48 percent of the plan for the second quarter with VND 120,000 bln.

Accumulated in the first five months of the year, the State Treasury has mobilized VND 162,952 bln, reaching nearly 41 percent of the whole year plan in 2023, increasing by 188.4 percent compared to the same period in 2022. In this, the State Treasury has completed the mobilization target of five years, seven years, ten years, and fifteen years.

Abundant cash flow

The first half of this year was a good season for government bond yields falling in all tenors compared to the fourth quarter of 2022. The VN Direct Securities Company said that the lowering of the operating interest rate by the State Bank of Vietnam is a positive supporting factor for the winning interest rate level in the auctions in 2023. In addition, VBMA also mentioned the reason for the increased demand from commercial banks.

As noted by Saigon Investment, in the first quarter the government bond portfolio of commercial banks also increased significantly. Specifically, TPBank government securities portfolio increased from VND 24,326 bln to VND 26,201 bln. Similarly, LPBank investment in government and local government securities increased from VND 27,915 bln to nearly VND 29,680 bln, and VIB investment in government bonds increased from VND 4,887 bln at the end of 2022 to VND 11,402 bln at the end of the first quarter.

Debt securities issued by the government for MB also increased sharply, from VND 24,273 bln at the end of last year to VND 36,053 bln at the end of March. At SeABank, government bond investment increased from VND 3,168 bln at the end of last year to VND 9,269 bln at the end of the first quarter.

Economic benefits

Looking at the whole market, commercial banks are still the main players in the government bonds market, determining the market's ability to mobilize capital. An economic expert said that in Vietnam, government bonds are still considered a safe investment channel and can be traded in the form of security on the secondary market.

With this channel, insurance companies also participate as a way of financial reserve, because government bonds with less volatility will be safer, preserving customers' money. However, the level of participation of this group or of foreign investors is not strong, because they also have many better profitable investment channels such as buying shares, contributing capital to other businesses, or depositing money in banks.

As for commercial banks, according to Circular 06/2016 amending a number of articles of Circular 36/2014 of the State Bank of Vietnam on limit s, the prudential ratio in the operation of credit institutions and the ratio of buying and investing in government bonds compared with short-term capital sources of the preceding month for commercial banks with state capital is 25 percent. For joint-stock commercial banks, joint-venture banks, banks with 100 percent foreign capital d branches of foreign banks, this rate is 35 percent.

Therefore, some commercial banks consider this a haven for abundant mobilized capital that has no output, and the movement of the government bonds market often depends on this group. But because commercial banks are the main investors, the successful issuance of government bonds focuses on short-term bonds because banks mainly have ort-term capital sources, which are difficult to balance to invest in long-term bonds. Specifically, in the last few years, the volume of government bonds with tenors of 5 to 10 years has been very high, making the budget face the pressure of debt repayment.

At a discussion session at the National Assembly socio-economic group on 25 May, Mr. Hà Sỹ Đồng, Vice Chairman of the People's Committee of Quang Tri province, said that the current bottleneck is the backlog of the national budget. The balance of the state budget deposited in the banking system has been quite high since 2019 and has increased significantly from 2022, up to VND 1,000,000 bln by this May.

From the beginning of the year to 17 May, the State Treasury still has to issue bonds to mobilize domestic capital up to VND 158,000 bln, while the maturity level of government bonds is only VND 17,000 bln, with total net borrowing from the economy at VND 141,000 bln. Mr. Đồng said that this amount is equivalent to the amount of money the State Treasury bids at the money market interest rate deposited mainly at the group of state-owned commercial banks.

Commercial banks buy government bonds from the State Treasury to spend their excess money. Then the State Treasury brings the mobilized money back into the banking system. This cycle shows that not pumping out credit will not bring growth to the economy. On the other hand, public investment is piling, and government bonds mobilized are not pushed out. This means that the economy has little incentive to accelerate.