Investor confidence must improve to unleash Vietnam's capital market

More transparency and expertise in Vietnam’s corporate bond market is needed for the country to recover investor confidence in its efforts to ease the current credit crunch in the capital market, heard a workshop Friday in Hanoi.

At the event, held by The Investor to discuss measures to help unleash the Vietnamese capital market, Dr. Can Van Luc, chief economist at BIDV bank, said for a sustainable and transparent bond market, it is necessary to quickly, decisively and strictly handle violations among corporate bond issuers to regain investor confidence; control the massive popularization in the secondary market as this has happened in the past time; and promote the participation of independent advisory organizations.

It is also important to improve the quality of cash flow among issuers, the economist said, adding that Vietnamese regulators should categorize bonds, including two groups of high-quality bonds and higher-risk bonds.

In terms of bond issuance transparency, Vietinbank Securities deputy CEO Nguyen Tuan Anh said Vietnam is poised to have five Vietnamese credit ratings companies by 2030 from the current two - FinnRatings and Saigon Ratings, meaning that three more companies would be licensed to operate.

To ease difficulties in issuing corporate bonds, the government on March 5 issued Decree 08/2023 amending and supplementing Decree 65/2022 on private placements. Anh said Decree 08 postpones credit ratings in issuances for one year, but it is still necessary to encourage credit ratings work for all bond issuers in order to help regain investor confidence and make the market more transparent. Besides, the participation of international and regional credit rating agencies should be encouraged.

Ta Thanh Binh, director of the State Securities Commission's market development department, said Vietnamese regulators have been seeking to increase transparency and professionalism in the securities market.

She said lawmakers are amending the country’s Securities Law with more tough fines against infringements to recover investor confidence. She mentioned the resilience of the Vietnamese economy as an advantage, as the World Bank, Asian Development Bank, and IMF see Vietnam as Southeast Asia’s fastest-expanding economy.

On Monday, the World Bank said it expected this economy to expand by 6.3% this year from a robust 8% last year, reflecting domestic and external headwinds, with next year’s growth forecast at 6.5%. Binh told the workshop that the Vietnamese economy’s fundamental factors are basically maintained and under control.

According to economic expert Dr. Nguyen Tri Hieu, the government needs to continue measures to strengthen the country’s banking system to help unleash the capital market, as the system still includes “weak” banks, and handling them would help make the system healthier.

Hieu said banks in the U.S. can go bankrupt but he has not seen this in Vietnam. “Actually, such banks are seen as zombies that make the whole system weaker, and the market would be healthier without those zombies.”

In its latest move to support the capital market, the State Bank of Vietnam cut several policy rates by one percentage point on March 15. The central bank reduced the discount rate from 4.5% to 3.5% and lowered the overnight interbank lending rate from 7% to 6%. It also cut the cap on the lending interest rates for short-term loans in some sectors from 5.5% to 5%. The benchmark refinancing rate remained unchanged at 6%.

The Investor Editor-in-Chief Dr. Nguyen Anh Tuan said international organizations and investors are upbeat about Vietnam’s medium- and long-term economic outlook as seen via reports delivered at Friday’s Vietnam Business Forum (VBF) technical sessions also in Hanoi.

Nguyen Tu Anh, chief of the Central Economic Commission's general economic department, said any market needs investor confidence to develop sustainably, therefore Vietnam must build up trust. This confidence is based on stable macroeconomic conditions, the protection of investors’ legitimate rights, and fairness for stakeholders.

Vietnam should think of insurance services for corporate bond investments, he suggested. Anh referred to bond CFDs (CFD: contract for difference), which are financial instruments offered by brokerage firms. Each bond CFD uses a particular bond as its reference asset.

For his part, Dr. Le Xuan Nghia, a member of the National Monetary Policy Advisory Council, said woes in the Vietnamese corporate bond market have closed ties with woes in the country’s ailing real estate sector, which has a lot of ties with banks’ “backyard” lending, therefore both deposit and lending rates in Vietnam are very high now.

According to him, the roots are the property market, where housing prices are too high compared to the average Vietnamese income. Therefore, a top priority now is to focus resources on pulling down real estate prices and boosting the affordable housing sector.

Nguyen Hai Nam, a standing member of the National Assembly Economic Committee, mentioned real estate developers with limited equity capital abusing leverage financing as a tough problem.

“Sometimes, leverage financing is 30 times higher than equity capital. And there are companies that each would carry out 50 projects at once,” Nam said.

As for other measures, he said banks need to be more active in helping ease the current credit crunch, such as increasing liquidity and rescheduling or restructuring debts for corporate borrowers.

"In addition, the Ministry of Finance and the State Bank need to act faster and more drastically to ensure the recovery of investor confidence, because investors are taking a wait-and-see attitude."

Nam added that Vietnamese regulators could learn lessons from U.S. special task forces in dealing with the U.S. banking crisis, which started last week with the collapse of Silicon Valley Bank.