Vietnam finance ministry seeks ways to expand government bond market
The purposes are to extend the maturity of government bonds and diversify investors in the government bond market, stated the Ministry of Finance (MoF).
Vietnam's government bond market is considered small compared to other countries in the region, requiring solutions to expand its scale and become an efficient capital mobilization channel for the state budget.
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Recently, as government bonds were issued in the market with various maturities, investors were diversified, translating into a sharp reduction in the holding rate of commercial banks.
As of the end of July, the holding rate of commercial banks was 51.1% (a sharp decrease compared to the rate of 79.7% in 2014), equivalent to that in regional countries such as Singapore, Malaysia and was lower than that in China (68%) and Thailand (60%).
The remaining list was held by investors such as the Vietnam Social Security, insurance companies that mainly were life insurers, the Deposit Insurance of Vietnam, foreign investors and other investors.
Additionally, the MoF has been stepping up effort in finalizing the legal framework, creating foundation for the creation and development of long-term investors and a sustainable market. The move would make the government bond market less dependent on banks.
Although the Vietnamese government bond market has sharply developed over the past time, compared to the potential of the economy and other countries in the region, the size of the local bond market is still insignificant. Phan Thi Thu Hien, head of the MoF's Finance-Banking Department cited the low development level of the economy as one of the main reasons, leading to low capital accumulation of economic groups.
As of July 2018, the outstanding debt of Vietnam's bond market was 39.9% of GDP in 2017, of which the outstanding debt of the government bond market was 29.2% of GDP. At present, the size of the bond market in Malaysia is 95% of GDP (the government bond market accounts for 49.7% of GDP); that of Singapore is 81.1% of GDP (the government bond market accounts for 49.6% of GDP), that of Thailand is equivalent to 73% of GDP (the government bonds account for 53% of GDP), that of South Korea is 124.6% of GDP (the government bond market accounts for 73.6% of GDP), that of China is 68.8% of GDP (government bond market accounts for 49.8% of GDP).
Under the government's strategy for bond market development in the 2017 - 2020 period, with vision to 2030, Vietnam's government bond market is expected to become a major channel of capital mobilization for the state budget and basis for financial market development.
Following this target, the MoF will focus on developing new products in the bond market and the operation of the derivatives stock market, stated Hien.
Additionally, the Vietnam Social Security is requested to participate in buying and selling the government bonds in the market, aiming to attract long-term investors and develop voluntary pension funds and pension insurance products, she added.
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