The Government bond market is restructured to "protect" public debt

	Over VND96 trillion of G-bonds mobilised
	State Treasury has issued 75,000 billion VND Government bonds in Quarter 3
	More than VND3.5 trillion worth of G-bonds mobilised

In the first 7 months of 2018, the average transaction value of the Government Bond reached 10,400 billion per session. Photo: Internet

This has contributed to reducing Vietnam's dependence on foreign capital, helping to improve public debt in a more secure and sustainable manner.

Maturity increased 3 times

Before 2015, although the Ministry of Finance implemented many solutions on legal framework for the development, the Government bond market still faced many major issues. Firstly, the Government bond market has small size, only accounting for 13.84% of GDP in 2014, in which, Commercial Banks held 79.7% of the market share. At this time, most of the Government bonds were issued with less than 5 year-maturity, so that the average maturity of the Government bond debt portfolio was 2.38 years (at the end of 2013), affecting the sustainability of public debt. In order to solve this issue, the Government and Prime Minister requested the Ministry of Finance to implement solutions to restructure public debt for the purpose of extending the maturity of the Government bond debt portfolio and diversifying investors in the Government bond market.

The result is quite positive, due to the maturity dates of the Government bond being extended. The Government bonds were issued in the market with various maturities, investors were diversified and extended, producing a sharp reduction in holding rate of commercial banks. As of the end of July 2018, the holding rate of commercial banks was 51.1% (sharply decreased compared to the rate of 79.7% in 2014) equivalent to regional countries such as Singapore, Malaysia and was lower than China (68%) and Thailand (60%). The remaining list was held by investors such as Vietnam Social Insurance, insurance companies that mainly were life insurers, Deposit Insurance of Vietnam, foreign investors and other investors. Currently, a number of foreign investors have paid attention to Vietnam’s Government bond market. Especially, in 2017, the Ministry of Finance issued VND 11,000 billion of Government bonds with 20, 30 year-term for these investors.

Another noteworthy point is that the Government bond has been diversified to meet demands of investors and boost transaction in the secondary market for the Government bond. Accordingly, the Fixed Rate Bond, the Zero-coupon bond and Bond with flexible maturity have been developed. At the same time, the bonds with maturity from 5 to 30 years were issued to form a bond market's yield curve. This diversification has increased the transaction size of the secondary market to about VND 9,000 billion per session in 2017, a sharp increase compared to the rate of VND 1,000-2,000 billion per session in 2011 - 2013. In the first 7 months of 2018, the average transaction value reached VND 10,400 billion per session.

Over the past time, the Ministry of Finance has taken the initiative and issued long-term Government bonds, especially, 15, 20 and 30 year-maturity bonds to meet the demand of insurance funds and extend the average maturity of Government bond debt portfolio, reduce the short-term debt repayment pressure and increase the sustainability of public debt. Specifically, the average maturity of Government bond debt portfolio has been extended from 2.38 years at the end of 2013, to 6.71 years at the end of 2017, and to 6.73 years at present.

Besides, based on the actual market, the Ministry of Finance has reported to the Prime Minister to step by step restructure the previous High-Coupon Rate bonds, restructure short-term bonds into longer-term bonds through repurchasing and exchanging in the market. In the coming time, the Ministry will continue to implement this operation to improve the Government bond debt portfolio.

It is shown that the Government bond has become a key capital mobilization channel for the economic investment and development. The restructuring of market for investors, maturity of public debt portfolio by issuing long-term bonds from 5 years to 30 years, the restructuring, repurchasing and exchanging has made the Government bond debt portfolio in particular and Public debt portfolio in general to be improved in a more sustainable trend. This trend is also consistent with the Party's and the State's Resolutions on capital market development, step by step reducing the dependence on foreign capital mobilization, especially in the context that Vietnam has become a middle income country and graduated from IDA - the channel receiving preferential fund from foreign donors.

Shorten the time of issuing and listing

However, although the Vietnam’ 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 Vietnam’ Bond market is still insignificant. 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); Singapore is 81.1% of GDP (the government bond market accounts for 49.6% of GDP), Thailand accounts for 73% of GDP (the government bonds account for 53% of GDP), South Korea accounts for 124.6% of GDP (the government bond market accounts for 73.6% of GDP), China is 68.8% of GDP (government bond market accounts for 49.8% of GDP).

For the market liquidity, in the first 7 months of 2018, the average transaction was VND 10.4 trillion per session, an increase of 15% compared to the average of 2017. Compared to other countries in the region, trading value on the secondary market of Vietnam’s Government bond market is equivalent to the average trading value of Thailand (about US$ 550 million per session - equivalent to 12.6 trillion per session); However, it was lower than some countries such as South Korea and Singapore (the average trading value was about US$ 1.4 billion per session - equivalent to VND 32 trillion per session).

Analyzing the reasons, Phan Thi Thu Hien-Director of Department of Banking and Financial Institutions under the Ministry of Finance said that the size of Vietnam Government bond market is still small compared to some countries in the region because the economic development is still low, so that the long-term savings from insurance companies and mandatory pension funds are limited, while the system of the voluntary pension funds is established. The market maker's activities are mainly concentrated in the primary market, and the role of the secondary market is limited. The technical infrastructure has not kept up with the pace of market development.

In 2017, the Prime Minister issued Decision No. 1191 / QD-TTg approving the roadmap for bond market development in 2017-2020, with a vision to 2030, which aims to develop the Government bond market to become a channel to mobilize capital for the state budget and a standard market for financial market development. To achieve this goal, Hien said that in the coming time, the Ministry of Finance will focus on implementing many solutions.

Assigning the Government bond investment plan 2017 for the 2nd period VCN - The Prime Minister has allocated the ministries and provinces and centrally-run cities the list of ...

First of all, for the primary market, the development of new products in the bond market and the operation of the derivative securities market is a priority together with regular, continuous issuance of maturities to meet the needs of investors and the restructure of the product to increase the sustainability of the government bond debt portfolio.

In the secondary market, the Ministry of Finance will implement solutions to increase liquidity in the market and increase transaction size. Recently, the Government issued Decree No. 95/2018/ND-CP on issuance, registration, depository, listing and trading of debt tools in the stock market. "Accordingly, in 2019, we will focus on developing a market maker with full rights and obligations under international practices, piloting the obligation of offering firm two-way committed price to the maker in order to boost the development of the secondary market, " Ms. Phan Thi Thu Hien said.

Regarding solutions to develop investment, the Ministry of Finance asked the Social Insurance to participate in buying and selling the Government bonds in the market to continue restructuring investors in the bond market; to develop the facilities of foreign investors, to pay attention to and attract long-term investors; and to develop voluntary pension funds and voluntary pension insurance products.

In addition, the modernization of information technology on the system of bidding, registration, depository and listing of bonds, it is required to strive to shorten the time from issuance stage to bond listing stage from T+2 to T+1, to increase liquidity of the bond market, which will be continued to develop intermediary institutions and market services.