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Commercial banks less interested in bonds
Concerned that the bond interest rates are not attractive, while having to concentrate on providing loans to fund production and business, a lot of banks have decreased the volumes of bonds they purchased in the last two weeks.
The period from the end of May to early July was considered the most boisterous time of the government bond market since early 2011. The success ratios of the government bond and the Bank for the Social Policies’ bond were between 45 and 80 percent.
However, the prosperous period did not last for a long time: the successfully issued volumes have been decreasing continuously in the last few weeks.
The two bond issuance campaigns launched by the Bank for Social Policies in mid and late July witnessed no investor who won the bid. Meanwhile, according to the Hanoi Stock Exchange HNX, the volume of successfully issued government bonds on July 28 was 450 billion dong only, or just 22.5 percent of the values of bonds put for the bid.
After a period of joining deeply into the bond market, it seems that commercial banks have finished the purchase, or at least, reduced their attention to the investment channel.
According to Dominic Scriven, General Director of Dragon Capital, an investment fund management company, previously, banks stepped up the purchases of bonds because they had idle capital, but they could not lend due to the limitation in the credit growth rate, and they needed to find other investment channels.
Meanwhile, after having purchased big volumes of bonds, banks now have to reconsider their usable capital which can be used for lending or investments. They need to take measures to protect their liquidity, especially after Fitch, a well known credit rating firm, has warned about the liquidity of Vietnamese banks.
The viewpoint of Dragon Capital has been shared by Deputy General Director of a state owned bank. The banker said that after purchasing a certain volume of bonds, his bank and many other banks need to reconsider the capital use efficiency.
“We will have to consider lending or injecting money in other profitable investment deals,” he said.
According to the Hanoi Stock Exchange, the interest rates at which banks won the bond auctions hovered around12.1-13.3 percent, which are even lower than the deposit interest rates banks are paying when mobilizing capital from the public.
“With the interest rates, the banks, which use the capital mobilized from the public to buy bonds, will certainly take loss,” a banker said.
Also according to the banker, the level of loss from trading bonds would increase, if the current interest rates do not decrease. “The inflation rate in July continues increasing, while it did not decrease as expected. Therefore, I cannot see any signs showing the possible interest rate decreases in the time to come,” he said.
While the capital costs have not decreased, the profits that banks can earn from bond trading cannot be more attractive.
Nguyen Quang Trung, Deputy General Director of the Hanoi Stock Exchange, said that the bond interest rate is considered as the benchmark interest rate; therefore, the bond interest rate is not likely to increase, once the government is targeting lower market interest rates.
“The capital mobilization depends on the cash flow, and if the cash flow is weak, the interest rates need to be high. Meanwhile, in such conditions, we wish to see the interest rates go down,” Trung explained.
However, Trung said that the temporary decrease in the bond purchases does not mean the decrease in the attractiveness of bonds. “In the eyes of banks, bonds are always considered a safe investment channel. Therefore, I believe that the current decrease is just temporary because of cash flow,” he said.
vietnamnet
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