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As part of its capital market roadmap, Viet Nam’s derivatives market is still in its infancy. International banks comment that hedging and tax policies are unclear, and familiarity with derivative products is still limited. Yet, Vietnam’s government has been working in collaboration with commercial banks toward introducing new derivative products to the market.
In April 2007, State Bank of Viet Nam allowed a pilot program for credit default swaps. An international bank was allowed a year in which to run a trial service hedging bonds issued by the Viet Nam government and local enterprises. Long term loans of local businesses from credit institutions operating in Viet Nam were also included. The international bank was allowed to transfer the credit risk from Vietnamese institutions to its branches outside Viet Nam for potential offset in the international markets.
Last summer two international banks with branches in Viet Nam initiated the first interbank Vietnamese dong interest rate swap, guided by Decision No. 62/2006/QD-NHNN. The 5-year swap was worth VND50 billion, where a fixed dong rate was paid against a floating rate at the 3-month VNIBOR.
In the latest initiative the Bank for Investment and Development of Viet Nam (BIDV) established a domestic version of the International Swaps and Derivatives Association (ISDA) agreement in collaboration with commercial banks to standardize and streamline legal documentation on all derivative transactions, this spring.
An ISDA contract is now a prerequisite in order for a party to enter into a derivative transaction and standardize legal documents. Under this contract, BIDV undertook two USD-VND currency swap transactions worth USD60 million in April 2008, in order to set a precedent in the domestic capital markets. Before that, businesses and commercial banks in Viet Nam each used their own version of swap documents. This practice greatly limited the ability of banks to offset one swap with another and to account for that hedge on a net basis. The result has been a greater use of bank capital than required when netting contracts.
To date there have been very few derivative transactions in Viet Nam. This market should become more active over time so as to create a more liquid market that will allow banks and companies to hedge their market risk and further support bond trading.
Links:
HSBC, BIDV cooperate to develop derivative transactions
HSBC and Standard Chartered pioneer Dong swaps
Decision issuing regulations on Interest Rates Swaps
HSBC to provide credit risk swap service on trial basis
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| The views expressed in the linked documents/web sites are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank (ADB) or its Board of Directors or the governments they represent. ADB makes no representation concerning and does not guarantee the source originality, accuracy, completeness, or reliability of any statement, information, data, finding, advice, opinion or views, presented in the linked documents/web sites. |
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