Capital market faces imbalances

Deputy Prime Minister Vuong Dinh Hue addresses a forum held in Ha Noi on Tuesday. - VNS Photo Linh Anh

The statement was made by Deputy Prime Minister Vuong Dinh Hue during a forum held in Ha Noi on Tuesday, discussing challenges and solutions to expand the capital – financial market of Vietnam.

Addressing the event, part of the Vietnam Economic Forum, the Deputy PM said it is necessary to look into the imbalance between the credit market and the capital market, between credit and other added services in banks’ credit activities, and between the short-term and long-term markets, particularly the bond market.

He said 53 per cent of businesses were not making profit at the end of 2016, saying that one of the reasons for this is the lack of capital.

“Many companies depend on bank loans to operate, so their financial expense is very high, plus other high expenses like market access and logistics costs, which hampered their business performance,” the Deputy PM said.

“We must develop the capital market toward modern and international orientation, working on solutions to provide capital, promoting the equitisation and divestment process at State-owned enterprises, market restructuring and enhancing the capital absorbability of market participants, especially in the context of economic fluctuations,” Hue said.

Inspection and supervision over the capital market should be strengthened to ensure a healthy, transparent and sustainable market, and to avoid fraud on the “black” credit market that often saw heavy rates and brought negative consequences for the society, he said.

Deputy Governor of the State Bank of Vietnam Nguyen Thi Hong said in the past, the financial market hasn’t developed as expected, but the stock and money markets have grown strongly and become the main sources of capital for the economy.

The stock market has recorded many breakthroughs in recent years with total market capitalisation surpassing 70 per cent of the country’s GDP in 2017. In the money market, the credit-to-GDP ratio is about 130 per cent. Government bonds (G-bonds) still dominate the bond market, while corporate bonds account for only 1.25 per cent.

All of them are short-term capital sources while the demand for medium- and long-term loans is big, thus putting pressure on credit institutions, Hong said.

Tran Van Dung, Chairman of the State Securities Commission of Vietnam, said Vietnam’s capital – financial market aims to ensure the balance among the banking market, the stock market and the bond market.

The country now has a very developed G-bond market and will boost the corporate bond market in the time ahead, he added.

At the forum, other speakers called for solutions to existing flaws of the domestic capital – financial market such as the shortage of medium- and long-term capital sources.

Fiachra MacCanna, Head of Research, Managing Director of Ho Chi Minh Securities Company (HSC) said long term capital should be a solution for undercapitalised banks and enables banks to offer longer term mortage.

“Introducing private pension funds should be an option for provide long term capital to the economy,” MacCanna said.

Ketut Kusuma, a senior specialist at the World Bank, said the structure of Vietnam’s long-term capital market has shown many positive signs. To expand the long-term market, the country should increase data and information transparency, modernise the legal framework and the market’s infrastructure, and improve its monitoring capacity.

For the stock market, it needs to integrate the equitisation of State-owned enterprises into the market development strategy. Meanwhile, the G-bond market should continue to be reformed to join global emerging market indexes, he added.