Investment & Finance

Vietnam must strengthen its capital market

SGI

The corporate bond market (CBM) makes up 8.6% of the GDP, compared to 130% of credit lending. This means that most of the capital funding comes from banks, and most of the risks occurring directly affect the banking system. It is therefore essential for Vietnam to strengthen its capital market to spread out the risks.

Clearing up procedures and transparency of information to raise international capital.

Clearing up procedures and transparency of information to raise international capital.

porate bond market (CBM) makes up 8.6% of the GDP, compared to 130% of credit lending. This means that most of the capital funding comes from banks, and most of the risks occurring directly affect the banking system. It is therefore essential for Vietnam to strengthen its capital market to spread out the risks.

Progress still slow

The corporate bond market in Vietnam has made significant progress in recent years and had reached 8.6% of GDP in 2018. Decree No.163/2018/ND-CP on issuance of Corporate Bonds (CB), which became effective in February 2019, is focused on development of an appropriate legal corridor to encourage new types of investments and new investors into the corporate bond market. In the bond market, companies have extended the capital raising period of one to three-year term to five years. This indicates that companies have improved their capital management with longer lending terms.

In general, however, most of the institutions that issue bonds are commercial banks, real estate companies or securities companies. Very few of them are from other sectors. Also, 30 institutions with the largest bonds now make up 85% of corporate bonds in Vietnamese dong. Compared with other Southeast Asian markets, the total CBM that made up 8.6% of GDP in 2018 was similar to that in the Philippines. While the Vietnamese CBM should have been something like that in Malaysia (more than 46% of GDP) or Thailand (over 20%), because of Vietnam’s global market accessibility as well as the advanced role of the capital market in recent years.

Another considerable figure is that the number of banks and securities with investments in CBs make up 77% of the issued numbers while small investors make up just 3%. This shows that there is not a wide variety of customers because they are mostly from banks and securities companies.

Ease formalities

The banking system in Vietnam now applies the Basel II standards while seeking sources for capital to support corporate activities and deal with debts, increasing pressure on the State Bank of Vietnam (SBV) and commercial banks. In such a situation, the development of CBs will be a channel that will help relieve pressure on the banking system, improve stability, spread out the risks and lengthen the companies’ capital raising term. Although CBM in Vietnam is not as satisfactory as expected, there is plenty of room for improvement. To achieve this goal, it is necessary to overcome some hurdles. As far as this matter is concerned, I make the following suggestions:

First, the procedures for issuance of CBs are now rather complicated. Medium-size and big companies clearly understand the legal requirements for issuance of CBs, but they still face lots of challenges. Therefore, the first problem is to cope with lengthy formalities. HSBC is now working with many other banks, major groups and competent agencies to improve and promote the development of CBM in Vietnam.

Second, information transparency is very significant if companies want to attract a wide variety of customers and investors. Recently, we have heard of the matter of protection of investors in CBM. That is, we must make it easy for investors to clearly understand all the information about the companies that issue CBs. To make it possible, companies that issue CBs must be rated on the corporate credit rating scale.

Access to international capital market

Some Vietnamese companies now have access to the international capital market to raise funds. Vietnam’s credit rating has been raised from B1 (positive) to Ba3 (stable), giving Vietnamese companies better access to the international capital market. Therefore, it is important to issue CBs to the international market. The international capital market will enable Vietnamese companies to improve their foundation to attract investors. In fact, some Asian economies have established access to the world bond market. When the bond issuing companies meet the international requirements for formalities, they can boost the development of their CBs.

Basically if CBM is developed, the Vietnamese capital market will make significant progress. Together with a strong role of the banks, it will give companies a better chance to have access to the regional and international stage, improving the reputation and further expanding the Vietnamese market on a global scale. Companies now can strengthen their ties with several banks to find customers abroad.

In the process of seeking capital in the international financial market, marketing also plays a pivotal role in telling Vietnam’s stories of success to the world and improving the chances for companies when they issue international bonds. It is a common tale in Vietnam that almost 100% of bonds have been privately issued, rather than publicly issued. This is a considerable challenge.

Nguyễn Gia

Stephanie Betant, Country Head, HSBC Vietnam

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