Vietnam Money-Bond issues to cut dong supplies
HANOI - The planned sale next week of 1.5 trillion dong ($95 million) in Vietnam government bonds could tighten currency supply, putting pressure on banks to secure longer-term deposits, bankers said on Monday.
Insurance companies are likely to be the biggest buyers of the five-year bonds that go on sale Aug. 1, switching funds from longer-term investments, such as bank deposits.
"The smaller dong supply would trigger fierce competition among banks to lure deposits. However, banks would come up with different products other than mere high interest," said a banker.
The bonds, part of a broader plan to raise 10 trillion dong and $30 million for road and irrigation projects, will carry a coupon of 8.6 percent.
"The high rate of the upcoming bonds would surely attract a lot of interest from both institutional and individual buyers," said a banker at a semi-private bank in Hanoi.
The Ministry of Finance last sold 1.5 trillion dong in bonds in May at a lower interest rate of 8.2 percent. The bonds were 80 percent oversubscribed, bankers said.
On Monday, state-run banks, the country's key lenders, kept overnight loan rates between 6.7 percent and 6.8 percent, unchanged from a week ago, but still higher than a range of 6.5 percent to 6.6 percent in early July.
Bankers said interest rates on one-year bank deposits were already high at 8.2 percent to 9 percent, putting pressure on margins since loan rates are 10 percent to 14 percent.
Five-year deposits now pay annual rates of between 9 percent and 9.24 percent, up from around 8.5 percent to 8.7 percent at the beginning of the year.
Many banks have offered other incentives to lure savers, such as paying interest up front and giving out prizes of gold.
Loan demand seen robust
Bankers said they expected robust borrowing demand in the second half of 2005 after Prime Minister Phan Van Khai last week ordered an all-out effort to achieve second-half economic growth of 9.3 percent after a full-year growth target of 8.5 percent was put in jeopardy by a relatively sluggish first half.
Hanoi also said all major infrastructure projects should start without delay.
Key projects include a $2.5 billion refinery, the country's first, and around $2 billion in new power plants.
In Ho Chi Minh City, loans extended in the first half of 2005 surged 30.9 percent from a year earlier.
But deposits over the same period increased only 23 percent compared to a year earlier, Tran Ngoc Minh, director of the central bank's Ho Chi Minh City branch told state media.
Economists have voiced concern over the rapid rise in lending and have advised the government to keep the credit growth rate at less than 25 percent to ensure economic stability. ($1=15,831 dong)
Reuters - July 25, 2005.
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