Options available in capital markets push

March 01, 2022 | 19:00
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Foreign institutions are advocating significant modifications to Vietnam’s financial services sector that would bring the country in line with international practices, from a foreign ownership limit percentage to devising feasible mechanisms to bolster novel initiatives and earn a market status upgrade.
Options available in capital markets push
Options available in capital markets push, photo freepik.com

Dominic Scriven, head of the Vietnam Business Forum’s (VBF)Capital Markets Working Group, stated that Vietnam is very one-dimensional at the moment, with the debt market dominated by commercial banks and the stock sector characterised by private traders. Additional efforts might be made to generate an enormous structure, such as pension funds, insurance firms, among others, to woo more professional investors.

Vietnam’s capital markets offer tremendous opportunities, illustrated by the total capitalisation of the country’s equity markets of approximately $340 billion, or 95.6 per cent of GDP, ahead of the vision set for Vietnam in 2025. Moreover, capital generated in the form of stock and debt totalled an expected $29.1 billion, or 45 per cent of overall credit growth in 2021 ($55 billion), estimated by Scriven.

In the first instance, the government, the Ministry of Finance, and the State Securities Commission should wrap up the financial policy framework to promote diverse green financial products. The State Bank of Vietnam (SBV) should also swiftly adopt appropriate green credit guidelines and regulations, as well as improve the incentives for banks and credit institutions. Furthermore, it is essential to build properly regulated surroundings for fintech, as well as sound infrastructure to facilitate startup progress, he believed.

In 2021, the National Agency for Technology Entrepreneurship and Commercialisation Development under the Ministry of Science and Technology estimated that Vietnamese entrepreneurs bagged over $1.3 billion in funding, equivalent to a fourfold increase compared to 2020.

The nation presently boasts over 3,800 startups, including the three unicorns of VNG, VNPay, and MoMo. Over 200 funds have poured cash into Vietnamese startups, specialising in fintech, e-commerce, logistics, insurance, real estate, education, and healthcare.

Vietnam ranked third in terms of fintech financing attracted as of November 2021 at $375 million, accounting for 11 per cent of the six main ASEAN nations, cited a study by UOB, PwC Singapore, and the Singapore FinTech Association.

Nguyen Ba Diep, vice president of MoMo parent firm M-Service acknowledged, “A brand new framework for data and information sharing across banks, credit institutions, and fintech, as well as improved legislative laws on e-transactions, is required. E-signatures and e-receipts, as well as credit scoring, should be thoroughly studied.”

Scriven added, “International involvement is rather modest in Vietnam’s equity market. Although the difficulties are not always straightforward, a determined effort might provide more stunning outcomes than is now possible. Additionally, attempts to transform Ho Chi Minh City into a regional financial hub should be accelerated to further highlight its competitive strength in comparison to regional rivals like Hong Kong and Singapore.”

John Rockhold, chairman of the American Chamber of Commerce in Vietnam, encouraged stronger alteration in foreign ownership limits to allow for greater foreign participation in listed and unlisted companies, as well as banks, which are currently restricted to 30 per cent. Given the fixed state ownership in four state-owned banks, it is merely conceivable to lift the limit in some privately-held lenders.

Additionally, the organisation advocated for measures that could help Vietnam achieve an investment-grade sovereign rating. While the government’s policy flexibility and the economy’s overall resilience are good indicators, more concrete efforts are important to build a track record of supervisory/regulatory reforms and to mitigate systemic risks in the banking/financial sector.

Enhancements to IT systems, intra-day trading mechanisms, and other market upgrades will be executed this year, according to Duong Ngoc Tuan, deputy general director of the Vietnam Securities Depository. The market for local derivatives, as well as new goods, is permitted to expand.

System overloads that plagued traders last year have been alleviated by the Korean Exchange trading system. An estimated completion date is set for sometime this year after it was halted for some time in 2021.

VNDirect also agreed that if Vietnam successfully implements the fresh trading infrastructure in the first half of 2022, the country’s status might be included in Morgan Stanley Capital International’s watch list for possible promotion to an emerging market group in May 2023. As part of the MSCI annual market review, Vietnam may then be informed of its upgrading to emerging market status the following year.

The VBF’s Banking Working Group (BWG), on the other hand, is looking forward to hearing feedback on the letter of credit costs from the relevant ministries. The group said that VAT should not be applied retroactively for 10 years in order to ease tax burdens and challenges for foreign-invested groups, making the process easier for them.

Secondly, the banking group noted, the SBV is asked to think about increasing the credit limit so that commercial banks have more money to aid businesses.

The size of the government debt market is $54.6 billion and the local government can currently borrow cheaper than the US Treasury.

Last year saw an increase of 56 per cent in new stock trading accounts, or an increase of one-and-a-half times in a year in the number of stock market participants. More and more people now consider the stock market as a channel to accumulate wealth.

In 2021, the average daily market turnover increased 3.6 times to reach $1.1 billion (equities) and $500 million (debt). The number of listed companies with an enterprise value of over $1 billion has increased from five to 62 in just a decade.

By Luu Huong

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