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The bright and dark parts of the bond market in 2012   2012-02-12 - TBKTSG

The Vietnamese bond market may witness a restructuring in 2012 when a big volume of bonds becomes matured and state management agencies draw up a plan to restructure the market. However, experts’ opinions about the market in 2012 vary.


According to Trinh Hoai Giang, Deputy Chair of the Vietnam Bond Association, 2012 would be a difficult year for the national economy, but there would be many favorable conditions for the bond issuance.

Commercial banks have to reduce the credit growth as requested by the State Bank of Vietnam which strives to curb the inflation. This means that there would be surplus capital at the banks. The capital may get stuck on the interbank market, since the liquidity problem gets more serious and the confidence among banks decreases. As a result, government bond would be the best choice for banks’ secondary liquidity reserve, because government bonds can be sold at any times and in big quantities.

Meanwhile, the inflation rate in 2012 is expected to decrease. The high inflation rate in 2011 has led to the high deposit interest rate of 14 percent per annum. Therefore, the government bond, which can bring the yield of 12 percent per annum, remains unattractive to investors.

However, once the inflation rate decreases to 11-12 percent, it would be easier to issue bonds.

More importantly, the volume of bonds to become matured in 2012 is relatively big, about 50 trillion dong, while there is demand for re-investment.

In the eyes of state management agencies, the government bond restructuring in 2012 would help improve the liquidity in the market and make it easier to trade. Bonds would be issued in large batches, while the share items close to each other would be combined. However, with the plan, the problems still exist in the way of calculating the bond prices. This may help to the loss on the book accounts for the banks holding bonds.

Meanwhile, Vu Anh Duc, Deputy Head of the Investment Section of Vietinbank, thinks that 2012 would be a difficult year for the bond market. The bad debt ratio increase, the bank liquidity continues weak, while the State Bank continues tightening the money supply.

In 2011, about 100 trillion dong worth of bonds were traded on the secondary market. However, in fact, commercial banks used the bond transactions as a way to lend to each other. Therefore, the majority of the bond transactions should be seen as lending activities, while in fact, the demand for bond transactions was much lower than the figure showed.

The Ministry of Finance, State Treasury and the Hanoi Stock Exchange have drawn up a plan to restructure the bond market. The most outstanding feature of the plan is to combine share items. Vietinbank would be the bank that implements the plan in the pilot period.

Besides, the Ministry of Finance is trying to create the “magnates” for the market, the “big guys” who act as the distributors on the market and commit to buy back the bonds when investors have the demand.

According to Dan Svensson, Analysis Director of Dragon Capital, the positive signs to appear in the second half of the year would help reduce the lending interest rates, which would bring some supporting factors to the bond prices.

However, he thinks that the demand for restructuring of the banking system may hinder the development of the corporate bond market in short term and in a large scale, while the small number of investors would continue hinder the liquidity improvement of the market.

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