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G-bond sales depend on bank credit, asset growth

Update: May, 04/2013 - 09:07

HA NOI (VNS)— Government and Government-backed bond sales in the first four months of the year were looking positive but achieving the target for the year will depend on credit expansion and the growth of total assets of credit institutions.

The State Treasury has set a target of VND150 trillion (US$7.14 billion) worth of Government bonds (G-bonds), while the total value of Government-backed bonds will be capped at around VND58 trillion ($2.77 billion).

As of April 25, the total capital via G-bonds and Government-backed bond sales reached nearly VND81.9 trillion ($3.9 billion), accounting for 39.3 per cent of the 2013 plan and up 35.1 per cent on the same period last year.

Of the total, VND67.9 trillion ($3.23 billion) was raised through G-bonds, up 179.6 per cent year-on-year and fulfilling 45.3 per cent of the 2013 plan. However, capital raised via Government-backed bonds fell 39 per cent from the same period of last year, reaching nearly VND14 trillion ($666.7 million), or 24.1 per cent of its 2013 plan.

Successful bids focused on the short-term bonds (2-5 year terms) which accounted for 22.5 per cent, 33 per cent and 21.1 per cent of the total value respectively. The 10-year bonds only made up 3 per cent of the total.

Interest rates paid on bonds were decreasing. Yields of bonds issued in the most recent bid decreased 179 points compared to the first issue this year for 52-week bonds, 155 points for 2-year bonds, 135 points for the 3-year bonds and 120 points for five-year bonds.

Market insiders attributed such a high success rate to the abundant liquidity of banks, which was due to low credit growth in recent years. In addition, reduced interest rates helped push investors to G-bonds.

However, analysts say the sale of G-bonds and Government-guaranteed bonds towards the end of this year will depend heavily on the monetary policy: including interest rates, credit growth of banks and expansion of total assets of the whole banking system.

Commercial banks were the main holders of G-bonds and Government-backed bonds whose holdings were estimated at 85-90 per cent of the total market value. Investments in these papers usually occupied 5.7-8.6 per cent of their total assets.

According to the State Bank of Viet Nam's most recent report, the credit growth of the whole banking system as of April 23 reached just 1.4 per cent. Meanwhile, total assets of the system by the end of February reached VND5,010 trillion ($238.57 billion), down 1.5 per cent compared to the end of last year.

Analysts were concerned that with such a low growth rate in both credit and bank assets in the first months of the year, it would be a difficult task to fulfil the 2013 government bond fund target.

The key factors now, they said, were that the Government should maintain stable macro economic conditions and a steady or declining interest rate policy, ensure credit growth of 10 per cent and growth in total bank assets of 10-15 per cent; and regulate a balanced monetary policy to ensure bank liquidity. — VNS

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