Government bonds lose their sheen

September 10, 2018 - 09:00

Though the interest rates on government bonds with maturity terms of one to 15 years have increased in recent times, there seems to be little appetite for them among investors.

In July, for instance, only 42.3 per cent of the bonds offered at auctions were bought, representing a 6 percentage point fall from June. — Photo

Compiled by Thiên Lý                                                

Though the interest rates on government bonds with maturity terms of one to 15 years have increased in recent times, there seems to be little appetite for them among investors.

In July, for instance, only 42.3 per cent of the bonds offered at auctions were bought, representing a 6 percentage point fall from June.   

Market observers said that since April, most auctions of government bonds, jointly issued by the treasury and the Việt Nam Bank for Social Policies have been tepid. And there are no signs of improvement.

If the situation continues, it would affect not only issuers and the market but also investors themselves, they said.

In July, the coupon rates on government bonds of various terms that were successfully auctioned were up by 0.02-0.35 percentage points. In August, the rate on 10-year bonds also moved upwards.     

Yet, they often failed to attract investors, with some issues going even completely unsubscribed.

What are reasons for this situation?

Analysts said this is because while the coupon rates have increased, they still do not match investors’ expectations.

The government bond rates are up by only 50 basis points – 100 basis points equal 1 per cent – from their bottom level recorded last March of 2.93 per cent on five-year bonds.

The yawning gap between yields in the primary and secondary markets is also an important reason, they said.

The slow disbursement of funds in recent times by the Government means it is awash in liquidity, resulting in low coupon rates for its bonds.

According to a report from the finance ministry, in the first five months of this year, public spending was worth VNĐ94.108 trillion (US$4 billion), a mere 23.5 per cent of the sum approved by the National Assembly.

Bảo Việt Securities Joint Stock Company said yields of government bonds with maturity terms of one, seven and 10 years on the secondary market have been on an upward trend. On August 10, they rose by 0.025-0.038 percentage points to 4.075, 4.575 and 5.038 per cent respectively.

With the secondary market being so much more profitable, it is little wonder fresh auctions of government bonds find few takers.

Analysts pointed out another important reason for the lack of interest in the bonds now. The main buyers of government bonds are the banks, but in the latter half of each year, their focus shifts to the main lending season as business begin gearing for peak shopping and consumption season.

Because of this, they reduce their purchase of government bonds during this period.

Some experts said to ensure there is demand for government bonds, the finance ministry should carefully survey the market and keep supply relevant to demand.

Banks hike deposit interest rates

Recently, many banks have increased their deposit interest rates, particularly on long- and medium-term deposits.

The inter-bank interest rates have also been adjusted upwards by four to five times.

The hike in the deposit interest rates has caused concern among analysts, who fear a liquidity crunch in the banking sector.

But senior bankers dismissed these fears, saying the liquidity is not just very good, it is even excessive at some banks.

So a reasonable question then is why lenders are hiking deposit interest rates.

Circular No 19/2017/TT-NHNN may be the culprit, making banks apprehensive if they would have the liquidity for long- and medium-term loans in the coming time. 

Late last year, the central bank issued the circular superseding an earlier one on the limits and capital adequacy ratios (CAR) of credit organisations, which reduces the use of short-term deposits for medium- and long-term loans.

To be precise, from January 1 this year, this ratio was cut from 50 per cent to 45 per cent. It is set to fall further to 40 per cent next year.

Prudent lending norms require banks to lend not more than 80-90 per cent of their deposits.

Now long- and medium-term loans account for around 53 per cent of total outstanding loans, while long- and medium-term deposits account for 30 per cent.

The pressure lenders feel to make sure they have enough long-term deposits to lend is obvious.

Besides this, the increase in deposit interest rates is also aimed at raising more funds to ensure banks are able to meet the rising demand for credit in the last few months of the year, a yearly phenomenon.

The higher deposit interest rates have made businesses worried that interest rates on loans would be a commensurately higher, something the State Bank of Việt Nam is known to desire.

This higher rates will also have a possibly unintended effect. By further increasing the gap in the interest rates between the đồng and the US dollar – the rate for the greenback is at zero – the downward pressure on the Vietnamese currency will be ease somewhat.

Often when the dollar is appreciating again the đồng, as has been happening recently, people switch their investments to the US currency. Besides, currency instability also brings obvious attendant problems such as capital flight and import of inflation, analysts said.

But they assured that the increased deposit interest rates would not affect credit interest rates since the Government is determined to keep the latter steady as part of its efforts to support businesses.

A central bank spokesman said the bank is committed to preserve the value of the đồng to encourage people to keep it instead of other currencies.

HCM City to collect Uber taxes as court dismisses suit

Now that Uber’s lawsuit has been dismissed, the HCM City Tax Department will continue to press the Netherlands-based ride-hailing firm to pay back taxes.

The department has received a notice from the HCM City People’s Court dismissing Uber’s suit filed last December claiming it is not subject to taxes because of Việt Nam’s double taxation avoidance agreement with the Netherlands.

The court dismissed the case because Uber Vietnam did not have the required legal status for it.

The department will now calculate the taxes and fines Uber owed between its launch in 2014 and pullout last September.

The amount will not be lower than VNĐ53 billion ($2.3 million), according to all indications.

Since Uber no longer operates in the country, the department will collect the money from Grab, which bought out Uber’s operations in Southeast Asia, or even through diplomatic channels. — VNS