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‘Bright spot' bond market doubles in size over 5 years

Update: February, 24/2015 - 08:35
Most of the local bonds are auctioned at the Ha Noi Stock Exchange in the capital city. — Photo vietstock.vn
HA NOI (VNS)   — The local bond market has grown double in size over the past five years, said Do Ngoc Quynh, secretary of the Viet Nam Bond Market Association (VBMA).

Recording an average annual growth rate of 30 per cent, it was the highest growth recorded in East Asia and ASEAN regions, Quynh told a local newspaper. He added that the growth of the bond market was a "bright spot" in the overall picture of Viet Nam's financial markets.

The total value of the bonds in circulation at the end of 2014 was approximately VND760 trillion (equivalent to US$38 billion and 19.3 per cent of the GDP), including VND700 trillion ($32.8 billion) from the government bonds (G-bonds).

The volume of corporate bonds issued successfully also increased over the years. In 2014, it was worth approximately VND40 trillion ($1.87 billion), up 30 per cent from 2010.

Quynh pointed out that the restructuring of the economy has supported the bond market growth in Viet Nam.

However, the secretary also saw limitations of the market, adding that its scale (19.3 per cent of the GDP) was still much lower than the target of 38 per cent of the GDP, set for 2020. The terms of G-bonds were also shorter than the target. Most of the best-selling terms were of five years and below, while the government wanted to sell more bonds with longer terms such as 10 and 15 years.

In addition, with the capitalisation of approximately $38 billion, the local bond market was still smaller than in the other countries in the region, including the Philippines with $102 billion (equivalent to 37.6 per cent of the GDP) and Thailand with $282 billion (76.3 per cent of the GDP).

The size of local government bonds was also smaller than the two remaining components of the financial system, credit institutions (100 per cent of the GDP) and market shares (31.5 per cent of the GDP).

Solutions

Quynh thought the problems could be solved by implementing measures to improve the quality of the market and develop more products to attract more investors.

The country should also improve the legal framework for the issuance and investment of corporate bonds. Quynh said that, in particular, the government should amend the local decree to reduce the procedures for bond issuance to encourage more participation in the market.

At the same time, they should also offer incentives and reduce fees and procedures to attract investors, especially foreign investors to the local bond market.

Successful auctions

Before the Lunar New Year holiday, the State Treasury sold VND5 trillion ($234 million) of five-year bonds with a coupon rate 5.39 per cent per year.

At the same time, the Treasury also raised VND805 billion ($37.7 million) through 10-year bonds with a coupon rate of 6.5 per cent per year.

After five auctions in early 2015, the State Treasury has successfully raised 31.37 trillion ($1.47 billion) in bonds. The auctions also sold VND2.3 trillion ($107 million) worth of 10-year term bonds.

According to the Ha Noi Stock Exchange, the country's major bond exchange, the results were visible in the cash flow to the bond market, with strong demand for five-year bonds at lower interest rates. — VNS

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