The State Bank of Vietnam (SBV
), the country’s central bank, is mulling over allowing foreign bank branches to use up to 35% of their short-term funding to buy government bonds (G-bonds), considerably rising from 15% currently.
This stipulation aims to enable a number of foreign bank branches, which are major G-bond buyers and often exceed the limit, to meet the SBV’s requirements and boost foreign and domestic investment in G-bonds.
Circular 36, which came into force in February 2015, stipulates that state-controlled commercial banks can use 15% of their short-term funding to buy G-bonds.
The limit is set at 35% for commercial joint stock, joint venture and wholly foreign-owned banks, 5% for non-banking credit institutions and 40% for cooperative banks.
The SBV’s move came after foreign investors repeatedly asked the Vietnamese government to amend the stipulation.
At the Vietnam Business Forum in late 2015, foreign investors said that the stipulation of 15% and 35% limit ratio of G-bonds holding per short term funding for foreign bank branches and commercial banks respectively is not in line with Basel II and III where banks are required to hold substantially more G-bonds.
“In addition, banks are perhaps the biggest (if not only) buyers for government bonds and this requirement may adversely impact the government plan in funding fiscal deficit next year and the development of an active primary and secondary securities market,” they added.
The Vietnamese government sold a combined 249.6 billion dong (roughly $11 billion) worth of government bonds via the Hanoi Stock Exchange last year, up 3.7% from 2014. Banks hold around 80% of total outstanding G-bonds presently.