G-bonds become important capital mobilisation tool: official
Efforts of the Ministry of Finance to restructure the Government bond market have turned the bonds into an important capital mobilisation channel for national economic development, stated Phan Thi Thu Hien, head of the ministry’s Finance-Banking Department.
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Speaking to the media on August 22, Hien said that before 2015, despite the ministry’s efforts in building legal framework for G-bond market development, it faced many big problems, including the small scale of the market (accounting for only 13.84% of GDP in 2014), the dominance of commercial banks in the market and bonds’ short terms.
To tackle the issue, the Government directed the Ministry of Finance to apply measures to reform the market and restructure public debt, lengthening the G-bond terms and diversifying investors.
As of July 2018, commercial banks owned 51.1% of G-bonds, much lower than the ratio of 79.7% in 2014. Other investors included the Vietnam Social Security, insurance companies and foreign investors.
G-bond terms have been expanded to 5-30 years. The diversity helped increase the scale of the secondary market to about VND9 trillion (US$387 million) per session in 2017, much higher than VND1-2 trillion per session in 2011-2013. In the first seven months of 2018, the average value of each transaction session was VND10.4 trillion (US$447.2 million) per session, noted Hien.
Meanwhile, the ministry has focused on building and completing the legal framework as a foundation for the formation and development of long-term investors, creating sustainable demand for the market, targeting voluntary pension funds, insurance companies and foreign investors, said Hien, highlighting that the G-bond market no longer depends on banks.
She said banks’ investment in G-bonds does not affect their lending activities, but helps them preserve their capital and optimise profits from G-bond trading. G-bonds are also a tool for the State Bank of Vietnam to manage monetary policies.
Hien said that in late 2017, investment in G-bonds accounted for 7.28% of total assets of the banking system, while credit outstanding balance made up 65% of the total, or 130% of the GDP.
Comparing the G-bond markets in Vietnam and other regional countries, Hien said the scale of Vietnamese market is still modest and has yet to hit its potential.
As of July this year, outstanding balance of the domestic bond market was 39.9% of 2017’s GDP, while that of the G-bond market was 29.2%.
Looking outside, the scale of bond market of Malaysia is 95% of its GDP, that in Thailand is 73%, the Republic of Korea is 124.6% and China is 68.8%.
In terms of liquidity, the average value of each transaction session of Vietnam is similar to Thailand, but much lower than the Republic of Korea and Singapore (about US$1.4 billion per session).
Hien said the reason behind the situation is the small scale of the domestic market due to lower economic development level, and the limited role of the secondary market, as well as the old technology infrastructure system.
In the future, it is necessary to develop new products in the bond market, better operate the derivative stock market and apply measures to increase liquidity of the market and improve transaction value.
Hien revealed that in 2019, the Ministry of Finance will concentrate on developing market makers bearing full rights and obligations in accordance with international practice, while expanding investors by asking the Vietnam Social Security to get involved more deeply in G-bond trading, luring more long-term and foreign investors and developing more voluntary pension funds and products.
