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Thursday, June 20, 2024

What is the rationale?

By Tue Nhien

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The rationale behind a proposed policy to provide payment guarantee for bonds issued by banks must be taken into prudent consideration, since such a policy may backfire. Why is payment guarantee necessary? The amount of bonds issued by banks, after having taken the lead in many consecutive years, dropped sharply in this year’s first half, accounting for only 6.8% of the total VND42,783 billion worth of corporate bonds, or less than VND3,000 billion, according to a report from the Vietnam Bond Market Association. Such a proportion compares poorly to 54.5% for the real estate sector or 24.6% for the consumer goods sector, understandably in the context banks were facing a capital surplus in the first half of this year. Another probable reason behind the sharp drop in bonds issued by banks is the bad reputation in the wake of irregularities found in the corporate bond market. Bond buyers have become more cautious towards this valuable paper, especially after many bank tellers were found to have advised clients to turn their savings into bond investments, exposing them to high risks. It should be noted that in recent years, most banks have actively issued long-term bonds and counted proceeds as their equity, […]
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