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Higher interest rate announced for compulsory bonds
The State Bank of Vietnam has announced it will pay more than the previously set interest rate on the compulsory bonds commercial banks had to purchase in March, which is really good news for banks.
On June 26 in the morning, the Governor of the State Bank of Vietnam signed Decision No 1435 on the interest rate applied for the VND20,300bil ($1.2bil) worth of compulsory bonds issued by the State Bank of Vietnam in March. The decision stipulates that the interest rate for the compulsory bonds will be 13% instead of 7.8%, from July 1, 2008 until they mature.
This will help banks get more money to cover the high costs of capital mobilisation. The newly announced rate proves to more truly reflect the prevailing interest rates on the monetary market.
On March 17, 2008, the State Bank issued 364-day compulsory bonds worth VND20,300bil in total with the interest rate of 7.8% per annum. The volumes of government bonds credit institutions had to buy were different, depending on the scale of the banks and their VND capital mobilisation capabilities.
41 credit institutions had to buy the compulsory bonds. Only credit institutions operating in rural areas did not have to buy, like Agribank, rural joint stock banks, central people’s credit funds, local people’s credit funds. Credit institutions which had mobilised capital balances of less than VND1tril as of January 31, 2008 also did not have to buy the bonds.
The State Bank of Vietnam announced it would issue bonds in an attempt to withdraw money from circulation, a move in its plan to curb inflation. However, as the decision was made in the context of banks’ seriously lacking VND, it faced strong opposition from banks.
Local newspapers quoted a lot of famous experts as saying that the issuance of compulsory bonds would threaten to destabilise the national economy. The experts also warned that the decision would trigger a new interest rate race, in which interest rates would be pushed up higher and higher, thus putting great difficulties on commercial banks. However, the central bank still insisted on the bond issuance.
VNN
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