11:02 | 24/06/2015 Finance - Banking
(VEN) - Interest rates are not attractive while bond yields tend to increase, leading to a situation where government bonds, especially long-term bonds have been left unsold. Raising capital from government bonds has to date achieved around 30 percent of the yearly plan.
Many government bond auctions have largely failed
Lack of sales
According to the Ministry of Finance’s statistics, the State Treasury of Vietnam organized eight bond auctions with total capital of VND3.408 trillion in May, including VND71 billion for five-year bonds and VND3.337 trillion for 15-year bonds, equal to 22.5 percent of April 2015 and 13.7 percent of May 2014. As of May 31, 2015, accumulated capital raised from government bonds reached VND72.9 trillion, equal to around 30 percent of the yearly plan.
Many government bond auctions have largely failed since March. For example, the auction selling VND2 trillion in state treasury bonds with five-year and 10-year terms on May 26 failed to raise any capital or the auction selling VND2 trillion in government bonds with five-year and 15-year terms on May 28 which just raised VND1 trillion for 15-year government bonds with a coupon rate of 7.6 percent per year.
A key reason leading to the poor sales was a move in banking capital flows. Credit has grown since the beginning of this year. Therefore, many commercial banks have bypassed long-term government bonds. In addition, raising capital from government bonds was growing more slowly than lending activities, making commercial banks reconsider piding up their funds. According to the National Financial Supervisory Commission, the total capital raised reached VND4,557 trillion by March 31.
The National Financial Supervisory Commission indicated that government bond yields had tended to increase since March, causing difficulties for raising capital. In addition, long-term capital flows from investors remained limited and commercial banks were more interested in government bonds with terms of less than five years in order to bolster their investment portfolios.
Another reason was that almost all commercial banks had hit their maximum level of purchasing government bonds issued by the State Bank of Vietnam following Circular 36. The circular states that maximum levels of purchasing government bonds compared to short-term funds of state banks; joint-stock commercial banks, joint-venture and foreign-invested banks; branches of foreign banks; and non-bank credit institutions were 15 percent; 35 percent; 15 percent and 5 percent, respectively.
The number of government bonds in the second quarter of this year is 14-percent higher than the first quarter. However, the completion of this goal will remain difficult.
The National Financial Supervisory Commission said that the State Treasury of Vietnam would face difficulties in raising capital from government bonds in the coming months.