On the morning of August 1, 2017, at the International Convention Center, Hanoi, Ministry of Finance and State Bank of Vietnam (SBV) held Opening Ceremony for the implementation of the new payment mode for transactions of Government bonds through SBV instead of through a commercial bank.
Attending the ceremony were Mr. Dinh Tien Dung, Member of the Central Party Committee, Minister of Ministry of Finance; Ms. Nguyen Thi Hong, Deputy Governor of the State Bank of Vietnam; representatives from the SBV’s Transaction Center; the Vietnam Securities Depository Center; and other relevant functional units of the Ministry of Finance, the State Bank of Vietnam and members of the Steering Committee of the Scheme transferring payment system for government bonds from commercial banks to SBV.
SBV and Ministry of Finance to closely coordinate the formulation and implementation of the Scheme
Implementing Directive No. 08 / CT-TTg dated 02/3/2012 by the Prime Minister on promoting the operation and enhancing the management of the securities market, the State Bank of Vietnam (SBV) has coordinated with the Ministry of Finance (MoF) to develop the Government Bonds Payment Scheme (G-bonds). During the implementation, SBV has paid special attention to the progress and the quality of Scheme, always work closely with MoF and prioritized all resources for the implementation. Because this is an important project, directly impacts on the stability and development of bonds market and currency market. The Bonds market is always closely associated with the Monetary market during the development process.
The government bonds market is the place to create commodities for the monetary market, helping the SBV to effectively manage the monetary policy, thereby stabilizing the interest rates, the value of the currency and the exchange rate. The developed monetary market also allows its members to effectively manage the liquidity of long-term investments in government bonds, helping market’s participants boldly invest in government bonds. Thus, a developed G-bonds payment system will promote the development of both the bonds market and the money market.
“To enhance the role of Government Bonds market, SBV has always been working closely with the Ministry of Finance during the market’s development, helping the State Treasury mobilize and use the budget effectively. SBV is the agent issuing Treasury Bills, which annually mobilizes tens of trillion VND from the monetary market to help the Ministry of Finance balance the budgetary revenue and expenditure. A successful implementation of the plan to transfer the function of payment for G-bonds from commercial banks to SBV is the most obvious evidence that shows SBV’s interest as well as commitment to support the development of bonds market" SBV Deputy Governor Nguyen Thi Hong emphasized.
Over the past years, the bonds market has made remarkable progresses, in terms of issuance volume, the result of G-bonds auction in the primary market in 2016 has reached over 336 trillion VND, increased over a thousand times as compared to 2009. In terms of trading value on the secondary market, the value of transactions in 2016 was over 3 trillion VND, equivalent to 67% of Vietnam's total GDP in 2016, more than one hundred times higher than 2009. The total value of bonds issued up to March 2017 has reached over 1,465 trillion VND, equivalent to about 32% of Vietnam's total GDP in 2016. This is a very impressive growth for the bonds market, but at the same time, it creates a lot of pressure on the solvency of any single commercial bank.
SBV undertake the function of payment for Government bonds and government-guaranteed bonds
Meeting the requirement of fundamentally changing the G-bonds payment system in response to the new developments, the Scheme transferring payment mode for government bonds from commercial banks to SBV was approved in March 2016. As the name suggests, this is the project that the SBV will assume the function of final payments for Government bonds and government-guaranteed bonds. From now on, the repayment in the bonds market will be carried out by a number of qualified commercial banks. Credit institutions (CIs) who are members of the inter-bank payment system can make payments for themselves. At the same time, the State Bank of Vietnam will support the payment of G-bonds through the mechanism of overdraft and overnight lending on the inter-bank electronic payment system. With thousands of members, direct and indirect, nationwide, the inter-bank payment system plays the backbone of the national payment system and is fully capable of making payments for current and future G-bonds transactions.
Besides, that the SBV is responsible for payment of transactions of Government bonds and Government – guaranteed bonds is in line with international practices and requirements of international integration as well as help to solve conflict of interest, ensure safety of securities settlement system and financial system, improve SBV supervision of national payment system, ensure the effectiveness of monetary policy implementation, and strengthen the development of Government bond market and efficiency of Government management of fiscal policy.
Therefore, the SBV coordinated with the MoF to urgently implement a series of specific works to promptly put new payment system for transactions of Government bonds into operation. The MoF issued Circular No. 46/2017/TT-BTC on guiding in Government bond payment. Vietnam Securities Depository (VSD) and the Banking Operations Center of the SBV jointly promulgated regulations and procedures for Government bond settlement and payment of transactions of Government bonds via SBV inter-bank electronic payment system. About technological infrastructure, two high-speed lines serving for Government bond settlement were installed between the VSD and the SBV Banking Operations Center. Software for Government’s bond settlement was written and tested successfully. Those were a large volume of works requiring great effort and close coordination of Steering Committee and officials of the SBV and the MoF.
Continuous effort in catching up with the development of international settlement technology
Member entities in bond market should promptly raise their comments on the new system; at the same time, the MoF and the SBV also need to formulate mechanism of supporting member entities applying the new system. Designers and operators of the new system should be seriously listen to ideas and comments from member entities, then urgently solve raising obstacles to ensure safe and smooth operation of the new system.
Commercial banks as payment banks also need to proactively ensure liquidity to better meet the settlement requirements, avoiding dependence on liquidity support from the SBV.
Fixing settlement date of T+1 is a great effort of the SBV and relevant entities in the context of current technology infrastructure. However, entities implementing the Scheme need to continue researching to improve the system for shortening the payment time, and catching up with the development of the international settlement technology. SBV officials should further cooperate with MoF officials while preparing for important programs such as improvement of overall inter-bank payment system to ensure more effective operation of the Government’s bond settlement system for the development of the market.
LH-VA