VietNamNet Bridge - Sources said the Ministry of Finance (MOF) is planning to borrow one billion US dollars more from Vietcombank, one of Vietnam’s largest commercial banks, at the interest rate of 3-4 percent per annum.

The Bond Index has increased by 2.63 percent so far this year, while the dong has depreciated by 5 percent during the same time, according to the Hanoi Stock Exchange, which means losses for bond investors.

This is why bonds have been selling slowly since the beginning of the year, causing problems for the Ministry of Finance (MOF).

MOF several years ago found it easy to issue government bonds, when commercial banks had capital in excess and injected money into bonds. But things are quite different now. 

The capital mobilization growth rate cannot catch up with the credit growth rate. The total money supply (M2) has been increasing slowly. 

Meanwhile, the State Bank recently sold foreign currencies in large quantities to stabilize the foreign exchange market. A report showed that over $7 billion has been sold to withdraw VND150 trillion from circulation.

MOF, in an effort to boost bond sales, has to raise the bond interest rate. The 5-year bond interest rate soared by 100 points after a couple of weeks, while the 10-year bond rate rose by 50 points. However, the situation has not improved.

MOF cannot go further in raising the bond interest rate, because this will make capital more expensive.

“GDP grows well, credit grows rapidly. Meanwhile, the dong has been taken from circulation. There is no more money left to flow into bonds,” an analyst said.

He noted that 70 percent of bond transactions in the market were short-term bonds (less than five years). “Institutional investors only want to buy 2-3-year bonds,” he noted.

The Bond Index increased by 24 percent last year, which brought bond investors prosperity. The index still ‘climbed a slope’ earlier this year, in January to March. But it began going downhill in April. The move by the State Bank to devalue the dong in August once again made bonds less attractive.

A report showed that foreign investors’ excess of bond sales over purchase reached VND6.4 trillion in the first nine months of the year. The figure was VND4.4 trillion in August alone.

Sources said that MOF, in an effort to implement the capital mobilization plan, is considering borrowing $1 billion more from Vietcombank.

In fact, the ministry once borrowed $1 billion from the bank at the interest rate of 4.8 percent per annum. But it may have to borrow another $1 billion to cover the government’s spending. However, the interest rate would be lower, at about 3-4 percent per annum.

TBKTSG