Removing bottlenecks in Vietnam’s financial market

December 04, 2023 | 12:30
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Experts in the finance-banking sector delves into the impediments the local economy and the finance sector faces as well as recommend ways to weather the storm.

At the international conference 'Vietnam's financial market: Opportunities and challenges' organised by the National Financial Supervisory Commission (NFSC) in tandem with the Project Management Board on December 1 in Dalat, Vu Nhu Thang, vice chairman of the NFSC said that the domestic economy, particularly the finance sector, was facing many challenges due internal and external factors.

Removing bottlenecks in Vietnam’s financial market

Regarding external factors, the global economy is forecast to recover slowly, and international organisations have continuously lowered the world economic growth forecasts for 2023-2024.

Inflation continues its downward trend, yet the pace is slow and it is still high. Meanwhile, other factors such as public debt, non-performing loans of businesses, and the financial, monetary and real estate markets carry many potential risks.

In addition, global trade continues to decline, exacerbated by a sharp decline in imports in developed countries and falling exports in developing economies.

“Political risks mount up, with the conflict between Russia and Ukraine and most recently that between Israel and Hamas showing no signs of ending, whereas climate change and natural disasters are increasingly complex and unpredictable,” Thang said.

In the domestic market, Thang said that international organisations continue to positively evaluate Vietnam's medium-term recovery prospects, with the IMF forecasting that Vietnam will be in the group of 20 economies taking the lead in growth pace in 2024.

The lifting of upgrading of Vietnam-US relations to Comprehensive Partnership level and the recent inauguration of the National Innovation Center in Hoa Lac have fostered strong commitments for investment expansion in Vietnam by major FDI businesses.

"Although in the first 11 months, the local economy is showing signs of improvement, many difficulties persist, as the economy mainly relies on bank credit; the banking system faces a growing bad debt threat," Thang said.

Duong Hong Ha, Deputy head of the General Supervision Department at NFSC, pointed out another problem of the economy as the on-year credit growth is currently the second-lowest level in the period from 2017-2023, mainly due to the economy's low capital absorption capacity.

The NFSC forecasts that credit growth for the whole year is likely to only approximate 10 per cent, lower than the set target of 14-15 per cent.

Ha said that bad debt has increased since the end of 2021 due to economic growth slowing down, the real estate market and corporate bond market facing multiple challenges, and the ability of businesses and people to repay debt has declined.

Meanwhile, the bad debt coverage ratio of the credit institution system tends to decrease, with the sharpest decrease being to the group of state-owned commercial banks, falling to around 53.2 per cent at the end of September compared to 77.2 per cent at the end of 2022.

On the stock market, by the end of November, the VNIndex hovered at around 1,100 points, up 9 per cent compared to the end of last year, yet has not recovered sustainably.

Stock market capitalization approximates 60 per cent of the GDP. The value of stock transactions in 11 months ponderously $751 million per session, down 13 per cent on-year.

The number of newly opened domestic personal accounts and outstanding margin loans has recently levelled off.

“After the correction period, the price-to-earnings ratio of the VNIndex is about 14.5 times, lower than in Thailand, Malaysia, and Indonesia, but foreign investors net sold more than $256 million in the first 10 months of this year, 2.7-fold the net selling value in the same period in 2022,” Ha said.

At the international seminar, To Thi Hong Anh, expert at the Financial Stability Department at the State Bank, voiced the importance of more strictly regulating the supervisory coordination mechanism between supervisory agencies in the Vietnamese financial system, along with clearly defining the functions and tasks of each agency to avoid overlapping functions and tasks.

In addition, it is necessary to complete the legal documents on financial and monetary stabilisation to further enhance the role and responsibility of the State Bank in implementing the role of macro-prudential supervision of the financial system.

He underlined the need to strengthen the construction of database, information and data-sharing systems.

Macro-prudential tools according to international practices need to be applied soon, gradually reducing the use of dual tools as the macroprudential policy operating framework is gradually separated from credit policy.

Anh emphasised the need to pay more attention in the banking system to ensure customer information privacy as well as find new methods of privacy assurance, and pay more attention to building the backup database system, promoting the application of regulatory and supervisory technologies.

The international conference 'Vietnam's financial market: Opportunities and Challenges' is within the framework of the Project on strengthening risk management and early warning in the financial sector, sponsored by the Korean government through Korea International Cooperation Agency.

The project, scheduled for implementation from 2021-2025, aims to build early warning tools for the financial sector, including a set of monitoring indicators, early warning models, and stress testing models, contributing to ensuring the stability of the financial sector, thereby supporting Vietnam's economic development goals, while contributing to strengthening the cooperative relations between Vietnam and Korea.

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