18 Money

Jul 27-Aug 2, 2015

Insurers happy
with longer
G-bond tenors
By Thanh Xuan

The first-ever release of 20-year

maturity sovereign bonds targeting
insurers has been welcomed by market participants.
Tran Thi Hue, head of Capital
Mobilisation under the bond issuer
State Treasury of Vietnam (STV),
said dozens of insurers had contacted the STV to place orders.
Earlier this month, the STV announced that the bonds, totalling
VND6 trillion ($279.7 million)
VND7 trillion ($325.58 million)
with a face value of VND10,000
($4.65) will be available from July
29 until the end of 2015.
In the third quarter alone, VND4
trillion ($186 million) would be
issued.
We are interested and will definitely be participating with a significant amount. This is the first time
that 20-year bonds are available and
the fact that they are issuing them
specifically for insurers makes it
even more special, said AIA Vietnams chief financial officer
Ly Nhon.
Nhon explained that life insurers cover long term risks as the duration of life insurance policies can
be as long as the life of the insured,
so having long term assets would
fit well to their liabilities, and the
investment is in line with AIAs
investment strategies in Vietnam,
and more specifically with the life
insurance industry.
We hope that this is the first of
many longer term bonds issued for
life insurers, said Nhon.
Nguyen Thi Thuy Linh, VPBSs
director of the Macro and Financials
team told VIR that there was a high
demand among insurers, who had a
real need for long-term bonds.
In the past, they often asked
the Ministry of Finance to issue 10year plus bonds because their funds
are long-term and they need longterm fixed income for financial
planning, Linh said.
Vietnam Bond Market Association (VBMA) chairman Do Ngoc
Quynh said besides the long tenor,
fine macro indicators such as the
inflation rate, exchange rate, and
balance of payments as part of the
governments recent efforts to sustainably develop the economy are
building trust among bond
investors.
Since 2014, the amount of
long-term government bonds successfully issued has increased significantly. This indicated that the
authorised agencies can be more
confident in releasing the 20-year
product, Quynh told VIR.
However, expert analysis warns
that insurers should also consider
the future outlook when negotiating
the bonds interest rate.n

Gold loses its lustre as prices fall further

By Thu Trang

Domestic gold prices have dropped,

with transactions dreary and investors seemingly uninterested in
gold at this stage.
Since mid July, Vietnams average gold price has dropped by
VND1.5 million ($70) per ounce.
The trading margin normally
recorded at VND40,000 ($1.86) per
ounce has now widened to
VND200,000-250,000
($9.3011.63) per ounce, as gold dealers
and banks have noticeably lowered
their buying prices to avoid risks.
In the third week of July, gold
futures for August were reported at
$1,129.60 per ounce on the Commodity Exchange (Comex) in New
York, a record low since 2010. According to gold experts, the worlds
gold price has dropped some 12 per

cent compared to the beginning of

the year. The price is expected to
plummet down to $1,000 per ounce
in the near future.
The local gold price has dropped
following the falling world market,
the strengthened dollar, and an expected Federal Reserve (Fed)s interest rate increase soon.
Hanoi-based Bao Tin Minh
Chau Jewellerys deputy general director Tran Nhat Nam said the companys gold trading had been rather
quiet recently despite a sharp price
fall, with supply exceeding demand.
Last week, Ho Chi Minh Citybased Saigon Jewellery Companys
gold price quotation was further adjusted downwards by VND300,000400,000 ($13.95-18.60) per ounce
compared to the previous week.
According to economist Nguyen
Tri Hieu, many factors have taken

their toll on the gold market, including the possible Feds interest rate
increase, plunging petroleum prices,
the strengthened euro, and Greeces
continued stay in the Euro zone.
In previous gold price plunges,
many local investors bought gold as
a long-term investment with many
keeping holding in hope that price
would continue to rise. As a result,
they have been left holding on to
gold amid an unpredictable market.
Hieu said the decision to sell or
hold gold at the moment all depended on investors strategy and tolerance limit. The gold price moves
cyclically and at some point in the future, gold prices could creep up.
He suggested that professional
gold traders should wait for a
bounce back, as selling gold at this
time will no doubt result in a loss.
As for smaller investors who ac-

quired gold as a short-term investment, selling gold to avoid additional losses could be appropriate at
present, noted Hieu, adding that as
those small investors or individuals
often have small capital, holding on
to gold while the price falls might
not be ideal and could result in more
losses.
As local investors gain confidence in domestic currency and both
the stock market and the real estate
market have begun to get back on
track, gold investment has gradually
become less popular. Also, the central bank has actively reduced gold
speculation among banks, contributing to the stagnation of the gold
market.
Gold is not regarded as a local
investment channel due to its low
profit margin at present, observed
Hieu.n

Bank confidence brimming

By Trang Nguyen

Investor confidence in the banking

sector has gradually improved, and
a new wave of investment in local
banks is expected soon.
In the first half of the year, the
government has taken serious measures to wipe out as many weak
lenders as possible throughout the
banking system. This effort is being
made in a bid to reduce the number
of banks in Vietnam to a reasonable
amount, as well as trim down soaring bad debts and cross-holdings.
Vietnam Construction Bank,
Ocean Bank and GP Bank have
been completely bought out so far
by the central bank.
Likewise, the pair-ups of big
lenders with small banks, such as
Vietinbank with PG Bank, BIDV
with Mekong Housing Bank, and
Maritime Bank with Mekong Development Bank, have further reduced the number of banks and
cross-ownership in Vietnam.
By the end of May, according to
the central bank, the banking systems bad debts ratio declined to
3.15 per cent from the 3.49 per cent
level at the beginning of the year.
Banking experts have predicted
Vietnams banks would become the
target of investment among both
local and overseas investors once
confidence in the banking industry
returned.
According to Phi Cong Dung,
director of corporate finance at the
ABB M&A/Merchant Banking, the
local banking sector is seen by foreign investors as a leveraged exposure to Vietnams economy, and
with economic conditions warming
up again, the banking sector is an
attractive destination for both portfolio and strategic investment.
We work with foreign financial
and strategic investors that are inter-

The restructuring of the banking sector has restored investor confidence

ested in investing in the domestic

banking sector on the right terms,
said Dung in an email. Banks with
a reasonable pricing plan and transparent procedures, coupled with
good corporate management,
through the right transaction structures, will certainly be able to catch
the attention of foreign investors.
Meanwhile, local investors have
taken the initiative to invest in domestic banks.
Kinh Do Corporation, for instance, has just paid VND1 billion
($46.51 million) to acquire a 17 per
cent stake of Dong A Bank to become the banks strategic partner
and largest shareholder.
BIDV and VPBank are also in
the final stages of negotiation with
their strategic partners.
We believe that we will complete selling shares to a strategic foreign investor with an optimal price
some time next year, said BIDV
chairman Tran Bac Ha.

Investor confidence has been

further strengthened with the governments easing of the foreign
ownership limit (FOL) in public and
securities companies. According to
some experts, the local authorities
will subsequently remove the current 30 per cent cap on the FOL in
the banking sector, in line with the
WTO and ASEAN Economic Community commitments to fully open
up the door for the banking industry
by 2020.
We think that the government
will eventually ease the FOL in the
banking sector in line with the liberalisation we are generally seeing
in Vietnam, Dung said, adding that
allowing larger stakes woud be an
incentive for foreign investors to
properly transfer technological and
operational expertise.
The participation of foreign investors in the local banking sector
will surely help clean up Vietnams
financial system, said Vietnam In-

Photo: Hoai Nam

ternational Law Firm (Vilaf) managing director Dang Duong Anh.

Japanese investors, for instance, have significantly contributed towards the domestic
banks creditability and confidence
after taking over some 10 per cent
or 15 per cent of the banks stakes,
Anh added.
Despite some experts concern
over the possibility of an entire FOL
cap removal, an incremental increase of foreign ownership is on
the cards, as stipulated by WTO and
AEC commitments.
This could effectively mean a
two-tier FOL system. In other words,
we would suggest a gradual removal
of the FOL cap; say an increase to 51
per cent, then 65 per cent, and 75 per
cent consequently in certain commercial and retail banks. Meanwhile,
the state would continue holding the
majority of stakes in a number of
banks which engage in social
lending activities, Dung said.n