Banks remain keen buyers of government bonds

April 10, 2017 - 10:17

Market observers said in the first two months of the year the Government successfully issued bonds worth VNĐ54.11 trillion ($2.38 billion) for terms of five to 10 years.

by Thiên Lý

Last year many banks, especially State-owned ones, partial to government bonds.

The Bank for Foreign Trade of Việt Nam (Vietcombank) invested VNĐ18.04 trillion (US$794.9 million) in them, BIDV, VNĐ22.2 trillion, and Vietinbank, VNĐ14.3 trillion.

Among private lenders, VPBank invested VNĐ55.3 trillion, MBBank, VNĐ52.4 trillion, and VIB, VNĐ26.5 billion.

Market observers said in the first two months of the year the Government successfully issued bonds worth VNĐ54.11 trillion ($2.38 billion) for terms of five to 10 years.

Analysts said the banks preferred the bonds since they were less risky than lending to businesses at a time when the health of many enterprises has not really recovered and banks’ bad debt levels and need for provisioning remain high.

Meanwhile, the secondary government bond market is developing quite strongly and is expected to grow further thanks to some new policies.

Indeed, market liquidity is likely to skyrocket once the State Treasury is able to buy and sell bonds after Circular 10/2017/TT-BTC, issued by the finance ministry last February to supersede an older legal regulation on the bond trading market, takes effect next September.

With respect to the functions of the State Treasury, the new Circular concurs with Decree 24/2016/NĐ-CP issued in April last year.

The decree allows the treasury to buy back government bonds, local bonds and Government-backed bonds with a maximum remaining tenor of three months to make the best use of idle funds.

The treasury will also buy bonds strategically to balance demand and supply and increase liquidity.

As for the lenders, they are in a sweet spot with respect to the bonds. For one, they are awash in liquidity, enabling them to invest in the bonds.

Analysts think the banks’ increasing investment in government bonds is a win-win situation considering the Government needs humongous sums of money for public spending.

Investors hunt for shares paying high dividends

Hậu Giang Pharmaceutical Joint Stock Company (DHG),Việt Nam’s largest drug maker, recently announced a dividend payout of 35 per cent for 2016, 5 percentage points higher than the rate approved earlier.

The company also plans to issue bonus shares at a rate of 50 per cent.

While Coteccons Construction Joint Stock Company (CTD) has not yet announced its profit distribution plans, many investors are keenly interested in its shares since they expect high dividends.

The company achieved a record turnover and after-tax profit of VNĐ20.78 trillion and VNĐ1.42 trillion last year, representing year-on-year increases of 62 per cent and 94 per cent.

Its earnings per share has soared to over VNĐ18,500.

The industry paying the biggest dividends is aviation. For instance, Đà Nẵng Airport Service Joint Stock Company (MAS) recently announced a second interim dividend of 40 per cent for 2016.

Nội Bài Cargo Terminal Service Joint Stock Company (NCT) has announced a payout rate of 106 per cent.

Hunting for shares of companies paying big dividends is a familiar practice on the stock market before the annual shareholders’ meetings season begins.

Analysts explained this rush by saying investors think companies paying good dividends run their business efficiently, have good management and manage their cash flows well.

But other analysts warned that investors should focus not just on the dividends but also the companies’ actual prospects.

After all, some companies pay big dividends but their turnover and profits keep falling.

The Nội Bài Cargo Terminal Joint Stock Company is one such. Despite its 106 per cent dividend payout in 2016, the firm’s shares fell by 40 per cent after its profit declined by nearly 14 per cent.

The analysts said short-term investors often focus on dividends but savvy, long-term investors always attach importance to the growth potential of a company.

They focus on shares whose value has grown steadily over the years as have assets, turnover and profits.

To make informed investment decisions, investors should carefully study the accounts and business activities of a company, they suggested.

Inflation concerns

According to a report from the General Statistics Office (GSO), inflation has been rising in recent months.

In the first two months the consumer price index (CPI) has risen by 4.96 per cent year-on-year. It was up 0.21 per cent in February and 4.65 per cent compared to the same month last year.

A CSO official said the inflation target of less than 4 per cent this year is already under pressure, since the prices of some products and services like power, education and healthcare would be adjusted based on approved roadmaps.

Market observers said the upward trend in global oil prices and the rising dollar also put pressure on prices in Việt Nam.

Energy prices are predicted to rise again as OPEC members and major exporters have come to an agreement to cut production, contributing to inflation in many countries including Việt Nam.

The US economy has shown signs of strong recovery and the country’s central bank, the Federal Reserve, has started to increase interest rates, causing the dollar to appreciate, including against the Vietnamese đồng.

This trend is expected continue.

Besides, the US’s withdrawal from the Trans-Pacific Partnership has hit Việt Nam’s exports, meaning there has been a drop in the supply of greenback in the market.

Both factors are expected to put upward pressure on prices in Việt Nam.

However, while many expressed concern about a possibility of high inflation, others are more sanguine, saying there are no such signs yet.

They contended that in 2017 aggregate demand, an important factor in inflation, is unlikely to go up.

Many local and foreign organisations estimate economic growth this year to be only around 6.3 per cent, the same as last year.

In the absence of rapid economic growth, high inflation is improbable, they explained.

This means the National Assembly’s goal of containing inflation at 4 per cent can be achieved. -- VNS