SBV asks banks to increase investments in government bonds

By May 31, 2016 | 01:54 am PT

The State Bank of Vietnam has decided to set new rules for how banks use their funds, asking banks to increase their investments in government debt, according to a circular released last Friday.

When the new regulations take effect on July 1, the ratio of government short-term funds held by banks –raised from deposits and other sources and returned to customers within a year – will rise sharply.

Foreign-invested banks and private commercial banks will have to use 35 percent of their short-term funds to buy government bonds. The ratio is currently 15 percent.

The ratio for state-owned banks and partly-private commercial banks will be adjusted to 25 percent from 15 percent.

Bonds have been a key source of funding for government spending on infrastructure, transport and energy projects, as well as to offset the state budget deficit.

Vietnam’s public debt last year continued to rise to an estimated 51.1 percent of gross domestic product, higher than the 47.3 percent recorded in 2014, data from Fitch Ratings showed.

Fitch also forecasts that Vietnam’s public debt will rise to 53.7 percent of GDP in 2016 and continue to rise in the medium term unless the government tightens fiscal policy.

Vietnam ran a budget deficit of VND66.4 trillion ($2.96 billion) in the first five months of this year, according to the country’s General Statistics Office.