Illustrative photo (Source: VNA)Hanoi (VNA) – Efforts of the Ministry of Finance torestructure the Government bond market have turned the bonds into an importantcapital mobilisation channel for national economic development, stated Phan ThiThu Hien, head of the ministry’s Finance-Banking Department.
Speaking to the media on August 22, Hien said that before 2015, despitethe ministry’s efforts in building legal framework for G-bond market development,it faced many big problems, including the small scale of the market (accountingfor only 13.84 percent of GDP in 2014), the dominance of commercial banks inthe market and bonds’ short terms.
To tackle the issue, the Government directed the Ministry of Finance toapply measures to reform the market and restructure public debt, lengtheningthe G-bond terms and diversifying investors.
As of July 2018, commercial banks owned 51.1 percent of G-bonds, muchlower than the ratio of 79.7 percent in 2014. Other investors included theVietnam Social Security, insurance companies and foreign investors.
G-bond terms have been expanded to 5-30 years. The diversity helpedincrease the scale of the secondary market to about 9 trillion VND (387 millionUSD) per session in 2017, much higher than 1-2 trillion VND per session in2011-2013. In the first seven months of 2018, the average value of eachtransaction session was 10.4 trillion VND (447.2 million USD) per session,noted Hien.
Meanwhile, the ministry has focused on building and completing the legalframework as a foundation for the formation and development of long-terminvestors, creating sustainable demand for the market, targeting voluntarypension funds, insurance companies and foreign investors, said Hien,highlighting that the G-bond market no longer depends on banks.
She said banks’ investment in G-bonds does not affect their lendingactivities, but helps them preserve their capital and optimise profits fromG-bond trading. G-bonds are also a tool for the State Bank of Vietnam to managemonetary policies.
Hien said that in late 2017, investment in G-bonds accounted for 7.28percent of total assets of the banking system, while credit outstanding balancemade up 65 percent of the total, or 130 percent of the GDP.
Comparing the G-bond markets in Vietnam and other regional countries,Hien said the scale of Vietnamese market is still modest and has yet to hit itspotential.
As of July this year, outstanding balance of the domestic bond market was39.9 percent of 2017’s GDP, while that of the G-bond market was 29.2 percent.
Looking outside, the scale of bond market of Malaysia is 95 percent ofits GDP, that in Thailand is 73 percent, the Republic of Korea is 124.6 percentand China is 68.8 percent.
In terms of liquidity, the average value of each transaction session ofVietnam is similar to Thailand, but much lower than the Republic of Korea andSingapore (about 1.4 billion USD per session).
Hien said the reason behind the situation is the small scale of thedomestic market due to lower economic development level, and the limited roleof the secondary market, as well as the old technology infrastructure system.
In the future, it is necessary to develop new products in the bondmarket, better operate the derivative stock market and apply measures toincrease liquidity of the market and improve transaction value.
Hien revealed that in 2019, the Ministry of Finance will concentrate on developingmarket makers bearing full rights and obligations in accordance withinternational practice, while expanding investors by asking the Vietnam SocialSecurity to get involved more deeply in G-bond trading, luring more long-termand foreign investors and developing more voluntary pension funds and products.-VNA
VNA
