VAFIE outlines ways to boost corporate bond market in report to Prime Minister

The Vietnam’s Association of Foreign Invested Enterprises (VAFIE) has stressed the need for greater transparency in the nation’s corporate bond market in a report submitted to the Prime Minister and relevant agencies.

The report contained the outcomes of a workshop on sustainable and professional development of Vietnam’s corporate bond market organized by The Investor on August 16. VAFIE is the parent entity of the online business publication.

The report reiterated key issues discussed at the workshop, including the need to improve bond market transparency, strengthen its management and supervision, and enhance the quality of issuing organizations.

The workshop gathered recommendations from many experts and representatives, including officials from the State Securities Commission (SSC), the Ministry of Finance, the Vietnam Securities Depository and Clearing Corporation, the State Audit Office of Vietnam, the National Assembly’s Economic Committee, Techcombank, Eximbank, BIDV Training and Research Institute, VPS Securities, Vietinbank Securities, and FiinRatings.

Participants agreed that achieving the target set by the PM, of having the corporate bond market reach at least 20% of GDP by 2025 and 25% of GDP by 2030, would be a challenging task.

Market transparency

The report noted that Vietnam’s banking sector is estimated to hold 95% of total assets in the financial market, underscoring the economy’s heavy reliance on banks.

Banks are the primary purchasers in the corporate bond market, which is valued at approximately VND1,200 trillion ($48.5 billion), the report said.

Compared to other countries, Vietnam’s corporate bond market is still in its early stages and required various measures to stimulate growth and address late bond payments, it added.

About 27% of bonds maturing in the second half of 2024 and in 2025 are at risk of delayed payment. Most of these bonds are related to the real estate and renewable energy sectors.

Workshop participants stressed the importance of enhancing transparency in the bond market by reviewing and amending relevant regulations, including Decree 153, Decree 65, Decree 08, and Decree 155.

These changes would increase information transparency and strengthen the roles of intermediary organizations, credit rating agencies, and accounting/auditing firms. They also suggested promoting public offerings and expanding the investor base.

They said strengthening public offerings of corporate bonds aligns with international practices.

Simplifying administrative procedures, shortening the time required for document review, and leveraging technological infrastructure for better management, and supervision of the corporate bond market, are other recommendations.

Regulatory agencies should review existing laws to better facilitate public offerings of corporate bonds.

Expanding investor base

The corporate bond market in Vietnam is currently dominated by commercial banks with a 55% market share. They are followed by securities companies and investment funds with 18%, individual investors with 15%, and insurance companies and pension funds with 9%. This distribution suggests that pressure on the banking sector remains significant.

To broaden the investor base, specific regulations are needed regarding voluntary pension funds and the allocation of assets based on risk levels.

Another crucial measure recommended was the relaxing of investment regulations for financial institutions. For example, extending the corporate bond investment cap for insurance companies and investment funds should be considered.

Experts also noted that allowing pension funds greater flexibility to invest in corporate bonds with high credit ratings could prove beneficial.

Completing the legal framework for the corporate bond market is an urgent task. This will include regulations for bond underwriters and establishment of a trading mechanism for corporate bonds in the secondary market.

The experts suggested creating a state-managed corporate bond investment fund, saying this will facilitate greater liquidity and stabilize the market when necessary.

Managing collateral assets

Currently, approximately 70% of circulating bonds are unsecured; and among the 30% secured bonds, real estate represents a significant portion. However, current regulations prohibit commercial banks from providing management services for these assets.

As a result, commercial banks are not allowed to manage secured assets, including real estate, in corporate bond issuances.

This presents a challenge for real estate enterprises, which accounted for about 22% of the issuance value in July, as well as other businesses seeking to use real estate or future projects as collateral. As such, it will be difficult for them to issue bonds and find a suitable organization to manage their secured assets.

Therefore, credit institutions should be allowed to manage collateral assets, particularly for real estate and future projects, experts recommended.