Large amounts of capital remain stagnant without being injected directly to the economy. And there was a new element that appeared.
On April 10, the State Treasury continued to organise bids and mobilise capital with three trillion dong of bonds. The winning ratio reached 60 percent and the interest rate remained low.
After the first quarter of 2019, with a total mobilisation of more than 69 trillion dong through government bonds, along with the pace of continued bidding for the current capital, the mobilisation schedule of about 260 trillion this year are favourable.
Besides the volume, the other advantage is that the government bond interest rates tend to fall sharply compared to the previous years, creating very low areas for terms. Borrowing costs accordingly reduce.
Specifically, by the end of the first quarter of 2019, the winning interest rate of five-year tenor bonds was only 3.7 percent per year, 10 year term was between 4.70-4.72 percent per year, 15 year term was about 5,02-5.06 percent per year, 20 year tenor in the range of 5.20-5.56 percent per year, 30 years is 5.80 percent per year.
Four years ago, when the pressure on long-term bond mobilisation was set at the National Assembly forum, as well as towards a three-year term closure, the 5-year term interest rate was then up to 6.46.5 percent per year. Now, the interest rate of one of these major terms is only a half.
Is low interest rate one of the favourable cost factors for the government to boost borrowing through bonds in the first months of this year? This is one of the factors; besides a large amount of government bonds maturing earlier this year and bidding activities are balanced, as well as a source of redundancy for the future.
Noticeable point: in the context of public investment disbursement is still slow, the large amount of budget is still stagnant in the banking system, so there is a shortage of money, but the mobilisation (borrowing) still continues to be promoted as above.
Specifically, the total amount of State Treasury mobilising in the first quarter of 2019 was over 69 trillion. Meanwhile, according to the general Statistical Office, the estimated amount of capital from the State budget was estimated at 50.8 trillion, only 14.7 percent of the year plans.
Notably, as of the end of 2018, on the financial report alone, three major commercial banks, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank), amounted to more than 216 trillion from the State Treasury (not including several years). Recently, this amount has been transferred to some joint stock commercial banks.
This situation is not a new story. Slow disbursement of public investment has been a permanent issue in recent years. Especially since 2017, the government has continuously set a request to speed up disbursement, even at the time of asking for review of related responsibilities.
So far, as above, the speed has not really improved.
Accordingly, Vietnam is still in a stuck situation: having money and having stagnant manifestations, but not boosting spending, creating the spread of direct resources in the economy to promote growth. It still relies on credit intermediaries to have higher lending interest rates, instead.
In contrast, stagnant capital and continuous mobilisation, interest payment cost is also a matter of consideration, although this is a period of obtaining a “soft interest rate zone” as mentioned above.
In addition, the large capital of the State Treasury deposited in the banking system also led to difficulties in the relationship and coordination between fiscal policy and monetary policy.
From 2017 to 2018, that difficulty was evident when the State Bank of Vietnam (SBV) had to continuously issue bonds to withdraw money, the term of treasury bills had to be extended to “detain capital “- something rarely seen in the previous period. This activity spans the whole year, but the cost of capital withdrawal (paying interest on bills) is also a point of interest in the budget.
In early 2019, after the Tet holiday, the market immediately noted that SBV returned to issue bonds to withdraw money. And this activity is still showing that there is a long-lasting prospect.
In addition to the slow disbursement of public investment, the accumulation of budget deposits at commercial banks, the purchase of a large amount of foreign currency by SBV in the first three months of this year is also a pressure to actively balance. And yet, the situation is stuck with money, but this indigestion also indirectly affects the interest rate and exchange rate balances in administration, with intertwined effects.
The large amount of deposits of the State Treasury is localised in some large state-owned commercial banks, contributing to stabilising interest rates. But when there is a large amount of accumulation, the banking system is in surplus, the interest rate in dong dropped deeply on the interbank, easily adversely affecting the stability of USD/VND exchange rate, when the dong interest rate swap with US dollar is narrow.
These problems are only really solved when the speed of public investment disbursement is improved.
In the temporary solution, a new development has appeared: on the financial statements of some state-owned commercial banks closed in 2018, for the first time after many years, a huge balance appeared in the item ” Term deposits of the State Treasury “(as in BIDV, up to 51 trillion dong, Vietcombank has 56 trillion dong).
Term deposits have interest rates that are higher than normal payment deposit rates. Accordingly, this new factor contributes to diluting and balancing the borrowing costs of the government.
But, having to mobilise a large amount of money, then a large part of the term deposit at banks can be considered as a balancing solution for the extreme.
