Vietnam corporate bond market needs new lease on life
Vietnam’s emerging corporate bond market needs urgent stimulus to address underdevelopment and distortion.
The Vietnamese financial market is dominated by bank credit supply. Credit expansions in recent years, despite tight regulatory control, have been twice to thrice, or even four to six times higher than the country’ economic growth. Most enterprises entirely rely on bank capital, while little attention is paid to other sources, which go with more risks.
Relatively high medium and long-term interest rates have pushed corporate bond coupon rates to very high levels, close to the average capital profit. Therefore, businesses that use corporate bonds in capital mobilization have not secured what they expect.
In addition, the term of corporate bonds is mainly three years. This discourages investment from manufacturing companies. Therefore, corporate bonds are often focused on speculative sectors like real estate (accounting for 46% of total corporate bonds issued) or on increasing tier-2 equity in the banking system (30% of corporate bonds issued). Among these, a large amount of corporate bonds has been used for debt reversal, capital contributions, or mergers and acquisitions.
Thus, the number of corporate bonds directly serving production like manufacturing, processing, agriculture, high-tech, commerce, and start-ups is very small. This largely explains why Vietnam’s corporate bond market remains distorted and sluggish.
The State Bank’s Circular 16/2021/TT-NHNN aims to control the use of proceeds from corporate bonds and directs the issuance of bonds to raise capital for projects in production like manufacturing, high technology, agriculture and commerce. This control and monitoring of the use of proceeds from corporate bonds is a step in the right direction.
Therefore, the key to develop a healthy market is to solve problems from issuance, including:
- Transparency of financial information and using issuer proceeds.
- To rate corporate credibility independently and objectively, so that investors could choose corporate bonds in accordance with the risk structure and term of coupon rates.
- Coupon rates must be reasonably based on market principles, not for speculation.
- Terms must be long enough to boost investment and profitability among manufacturing businesses.
- The collateral and guarantee mechanism for corporate bonds must be transparent and be supervised by regulators.
- Another reason behind the market’s underdevelopment are imperfect market rules and regulations. There are not enough rules ensuring safety and transparency, with supervision lacking and inconsistent.
In addition, the corporate bond market still lacks financial institutions that support it like guarantors, auditors and evaluators, while credit ratings agencies are not trustful enough to promote market development.
In 2022, the market will continue experiencing difficult development conditions in terms of corporate bond quality, issuer credibility, investor reliability, and regulator supervision and management. Growth, therefore, is still low despite the economy’s high demand for medium and long-term capital.
However, if the State Bank of Vietnam has stricter control over medium and long-term credit and the legal system is more complete, it is likely the market would see new developments in 2023 or later.
In turn, in order to reduce coupon rates in the market, bank interest rates, specifically medium and long-term, must decrease. Bond terms must be extended to 5-10 years so companies in production, manufacturing, agriculture, and construction could make use of bonds effectively over a suitable period.
These problems cannot be solved overnight, obviously under the country’s current circumstances. And this is also the reason why domestic enterprises rely greatly on bank credit supply. This shows the corporate bond market needs a “push” to take off.
Towards that goal, the Ministry of Finance and State Bank need to be bolder and more drastic in applying regulations on cutting the ratio of using short-term capital for medium and long-term loans as written into the already set roadmap.
They should not delay reducing the ratio of short-term capital used for medium- and long-term loans to 37%, followed by 34% and 30% to gradually draw closer to international practices and reduce risks for the banking system.
*Dr. Le Xuan Nghia is Director of Institute of Business Research and Development.
- Read More
Nghiem Xuan Thanh appointed Party chief of Khanh Hoa province
Nghiem Xuan Thanh, Party chief of Hau Giang province, was appointed by the Politburo, the country’s supreme decision-making body, to be Khanh Hoa province’s Party chief for the 2020-2025 term.
Politics - Sun, November 3, 2024 | 7:45 pm GMT+7
Thailand seeks FTA negotiations with Eurasian Economic Union
Thailand is holding talks with Russia to expedite negotiations for a free trade agreement (FTA) with the Eurasian Economic Union (EAEU).
Southeast Asia - Sun, November 3, 2024 | 7:20 pm GMT+7
Indonesia attracts foreign investment in technology sector
As many as 19 Australian companies have expressed an interest in investing in Indonesia's technology sector, Communication and Digital Affairs Minister Meutya Hafid said on Thursday.
Southeast Asia - Sun, November 3, 2024 | 7:18 pm GMT+7
Robots work hard, don’t argue: Viettel exec counsels effective use of technology
Small businesses in logistics should look to use existing tools, software and technology solutions effectively, says Dinh Thanh Son, deputy CEO of Viettel Post.
Companies - Sun, November 3, 2024 | 4:30 pm GMT+7
Vietnamese multi-sector group Masan uses AI to forecast product sales: executive
AI has helped Masan Group forecast the number of items likely to be sold during peak season based on available data and to optimize product placement, says An Luong, head of the corporation’s artificial intelligence & data science division.
Companies - Sun, November 3, 2024 | 2:51 pm GMT+7
Vietnam needs large, specialized logistics centers to compete better: official
Vietnam needs large-scale, specialized logistics centers that will enable greater competitiveness of local economies and enterprises, says Tran Thanh Hai, deputy head of the Ministry of Industry and Trade's agency of foreign trade.
Economy - Sun, November 3, 2024 | 11:00 am GMT+7
Vietnam manufacturing sector sees 35% increase in Q3 job orders: Adecco
Vietnam’s manufacturing and sourcing sectors saw a substantial 35% year-on-year increase and a 52% quarter-on-quarter increase in Q3/2024 job orders, global workforce solutions provider Adecco said in a reseach report released Thursday.
Economy - Sun, November 3, 2024 | 9:00 am GMT+7
Construction majors to continue capitalizing on public investment projects
Vietnamese construction giants are expected to continue capitalizing on public investment projects for the remainder of this year after delivering strong performances in the third quarter, analysts say.
Companies - Sun, November 3, 2024 | 8:00 am GMT+7
Former Government Office chairman receives $7,900 bribe from property project
Mai Tien Dung, former Minister-Government Office Chairman, received a bribe worth VND200 million ($7,900) from Nguyen Cao Tri, owner of the Dai Ninh eco-resort and urban area project in Lam Dong province.
Society - Sat, November 2, 2024 | 9:13 pm GMT+7
Thai food giant CP enters public-private partnership to promote food system transformation
Thai-invested C.P. Vietnam Livestock JSC and the Partnership for Sustainable Agriculture Vietnam (PSAV) signed a memorandum of understanding Friday on working together to advance sustainable agriculture in the country.
Companies - Sat, November 2, 2024 | 7:16 pm GMT+7
Central Vietnam province Quang Ngai to begin work on new VSIP industrial park next year
Vietnam’s central province of Quang Ngai will work with the investor to have construction of VSIP II Quang Ngai, a facility based on the Vietnam-Singapore Industrial Park (VSIP) model, begin in August 2025.
Industrial real estate - Sat, November 2, 2024 | 3:47 pm GMT+7
Vietnam likely to grow 6.5% in 2024-2025: VinaCapital
VinaCapital, among the biggest foreign-run asset managers in Vietnam, has forecast the country’s economy to achieve 6.5% growth in both 2024 and 2025, with the composition of the expansion to change to more domestically driven factors next year.
Economy - Sat, November 2, 2024 | 2:00 pm GMT+7
Major Vietnamese developer Novaland appoints new CEO
Duong Van Bac, who joined Novaland as chief financial officer in August 2023, has been appointed general director, starting Friday.
Companies - Sat, November 2, 2024 | 10:24 am GMT+7
Vietnamese conglomerate Bamboo Capital posts 36-fold profit growth in Q3
Ho Chi Minh City-based Bamboo Capital Group recorded an after-tax profit of VND331.2 billion ($13.1 million) in the third quarter of 2024, an astounding 36-fold expansion year-on-year.
Southeast Asia - Sat, November 2, 2024 | 9:41 am GMT+7
ThaiBev to bag $54 mln from Sabeco’s upcoming dividend payout
Vietnam Beverage, wholly owned by Thai Beverage (ThaiBev) will rake in VND1,374 billion ($54.26 million) worth of dividend from Ho Chi Minh City-based top brewer Sabeco.
Companies - Sat, November 2, 2024 | 9:13 am GMT+7
Steel heavyweight Hoa Phat pours over $2 bln into central Vietnam complex
Leading Vietnamese steelmaker Hoa Phat had invested more than VND52.5 trillion ($2.08 billion) in its Dung Quat Iron and Steel Integrated Complex (Dung Quat 2) in the central province of Quang Ngai as of Q3/2024.
Industries - Sat, November 2, 2024 | 8:00 am GMT+7
- Infographics
-
Pakistani, Indian sugar bans won't affect Vietnam market: association
-
Wood pellet exports down but Japan buys more
-
Additional capital of FDI companies up 93% on-year
-
FDI capital expansion surges 66% in first half
-
Vietnam GDP grows 6.42% in six months
-
Disaster prevention efforts get a boost with Zalo mini-app: official