Nation’s bond market comes into its own

The fledgling domestic bond market is expected to become one of the country’s most important sources of capital in future thanks to some recent measures taken by the Government and market participants.

According to many analysts, in spite of being an important channel for enterprises to raise capital, the Vietnamese bond market remains undeveloped and small.

Tran Van Dung, general director of the Ha Noi Stock Exchange (HSX), said the current market capitalisation of bonds in Viet Nam was around VND115 trillion, or 13 per cent of the country’s Gross Domestic Product, much lower than in countries around the region where the lowest level is 50 per cent.

But that could all change soon. Realising the importance of the bond market, the Government and market players have recently taken many measures to strengthen it.

Last August, major financial institutions got together to establish the Viet Nam Bond Market Association (VBMA).

Of its 58 members, 34 are local banks, securities companies and insurance firms while the rest are foreign-owned financial institutions. It has the responsibility of mobilising members and setting standards for the market’s operations.

It has also taken on the task of setting up a standard interest-rate curve for the bond market, giving it a standard frame for bond trade and ushering in international rules.

It will soon start working on drafting a code of ethics for bond trading and providing training for its members and will act as a bridge between its members and State agencies.

The HSX set up last September a new platform to handle Government bond trading.

The facility is designed to “enhance transparency” and “increase liquidity” in the bond market. It will also be the nodal agency for disseminating Government-bond-related information in the market.

The HSX’s Dung said developing a standard bond trading mechanism and setting up a Government-bond platform would standardise the market with high-quality commodities, thus creating an attractive environment for investors. This would also help develop the financial market.

Analysts hope these changes will create an impetus for the rapid growth of the bond market, particularly the Government bond market.

There are around 500 bonds being traded on the market, most of them Government bonds. But with many of them being small issues, they do not enjoy high liquidity, said the secretary of the VBMA.

As a result of the poor development of the bond market, most businesses depend on bank loans for funds.

But this is fraught with difficulty for both borrowers and lenders, the official said, adding many firms found bank loans unattractive due to the tortuous procedures and the shortage of liquidity at banks.

Analysts explained that since most Vietnamese banks were weak in assessing borrowers’ credit worthiness, they relied overwhelmingly on securing collateral.

Another problem is that banks have access mostly to short-term funds while businesses need long – and medium-term funds.

Some companies take recourse to the stock market to raise funds but this involves diluting their ownership.

Dung of the HSX said bonds were an important source of capital for the Government for public spending.

The Government-bond market also helps diversify the asset market, giving investors more low-risk investment opportunities.

The development of the Government-bond market would lay the foundation for the growth of the corporate-bond market too, he said. “In other words, the Government-bond market will contribute to promoting the development of the entire financial market.”

VietNamNet/Viet Nam News