HÀ NỘI — Standardised repurchase agreement (repo) contracting frameworks will be implemented in the second quarter of this year to increase liquidity in Việt Nam’s bond market.

Chairwoman of the Việt Nam Bond Market Association (VBMA) Nguyễn Thị Kim Oanh announced the change in the association’s annual meeting on Tuesday.

In the meeting, the master agreement for repo transactions was introduced, with 20 members of the association signing a memorandum of understanding (MoU) on the use of the master agreement.

The contract form has been drafted with the support of the Asian Development Bank (ADB) and is based on international repo contracts adopted by the International Capital Market Association (ICMA).

Repo trading plays an important role in capital flow in the financial market, especially the interbank market. The form of short-term borrowing features a dealer selling government securities to investors on an overnight basis and buying them back the following day.

The size of Việt Nam’s bond market has swelled rapidly in the past decade, with outstanding debts reaching VNĐ1.2 quadrillion (US$48.1 billion) in 2018 and making up 38.3 per cent of gross domestic product (GDP).

According to the VBMA, the demand for repo trading has increased in recent years given the mounting volume of valuable papers held by banks.

The value of repo transactions accounted for only 40 per cent of total trading in the bond market in 2016 but it increased to 48.5 per cent in 2017 and 54.5 per in 2018. In the interbank market, repo transactions can rise to 50-70 per cent of total transactions.

“Building a standardised contracting framework for repo transactions will help boost trading and liquidity in the bond market,” Oanh said.

A standard contract form would minimise risks and increase transparency, thereby reducing transaction costs and attracting more investors, she said.

This framework is also expected to be applied in other repo transactions, including trading of corporate bonds and other transactions on the monetary market.

To facilitate the agreement, the association plans to hold training courses on professional knowledge and transaction skills for members while expanding international co-operation to attract more foreign investors to the bond market.

Phạm Thanh Tâm, head of the Department of Banking and Financial Institutions under the Ministry of Finance, said the ministry would continue working to complete the financial framework for corporate bond issuance in 2019.

It will also review and refine mechanisms and policies to attract long-term and foreign investors to the bond market. — VNS