|Phan Thị Thu Hiền, director of the Department of Banking and Financial Institutions under the Ministry of Finance. — VNA/VNS Photo Văn Giáp|
Prime Minister Nguyễn Xuân Phúc has approved a roadmap for bond market development in the next three years, with a vision to 2030, under which the ratio of outstanding bonds to Gross Domesrtic Product (GDP) is expected to be 45 per cent of in 2020 and 65 per cent in 2030.
Vietnam News Agency speaks to Phan Thị Thu Hiền, director of the Department of Banking and Financial Institutions under the Ministry of Finance, about difficulties in implementation and solutions to achieve this goal.
The Government has approved a roadmap for bond market development for 2017-20, with a vision to 2030. Could you tell readers what’s new in this plan?
The new points of this route originate from the target set. Accordingly, the objective is to synchronise the development of the bond market and other markets, including the money and capital markets.
Solutions to problems such as the development of market makers and the investor system, the restructuring of intermediary institutions and information technology are also more detailed.
An important part of this roadmap is enhancing international cooperation so that the Vietnamese bond market can integrate into the region and the world.
In your opinion, are there any restrictions on Việt Nam’s bond market that mean we have to come up with a long-term development strategy?
For a long time, we have realised the biggest weakness of the bond market is its small size.
By the end of 2016 and the beginning of 2017, total outstanding debts on the market made up about 35 per cent of GDP. Most debts were formed through the purchase of Government bonds. In recent years, the Government has focused on implementing many solutions to develop the bond market.
However, in comparison with other regional countries, the size of the bond market in Việt Nam is still small. In other countries, the ratio of outstanding bonds to the GDP is 60-70 per cent. In Japan, this figure is up to around 200 per cent.
Secondly, the liquidity of the bond market in Việt Nam is not high, with trading value ranging from VNĐ8 trillion (US$355 million) per session to VNĐ10 trillion. Compared to other countries in the region and the world, this figure is also relatively small.
Regarding the investor base, in foreign countries most investors are long-term, but in Việt Nam, despite market reform, the market often sees the participation of short-term investors. This has also hindered the development of the bond market.
Because of these issues, the Government has set a long-term goal to ensure that the market will become the medium and long-term capital mobilisation channel of the economy.
Could you elaborate the role of corporate bonds in the bond market? Is this an effective step to improve the quality of the capital market and reduce the dependence on short-term loans from banks?
Looking at the development of the Vietnamese financial market, we see the strong growth of the banking system. As a result, the banking channel is a major source of funds for the economy.
In fact, from 60 per cent to 80 per cent of deposits in the banking system is short-term capital. Therefore, when banks provide medium and long-term loans, it leads to the risk of maturity mismatch to the banking system.
Doing a comparison exercise, the outstanding debt of the corporate bond market accounted for about 5 per cent of GDP in the first six months of the year, while the ratio of outstanding debt from banks to the country’s GDP is about 130 per cent.
This is a huge gap between the amount of debt provided by the corporate bond market and that supplied by the banking system. For this reason, solutions to reach the target set on the roadmap will also focus on developing the corporate bond market.
The development of this market is also one of the factors to encourage information disclosure and enhance the transparency of businesses.
This is not a simple matter. It requires an improvement in the legal framework and the trading infrastructure for the market.
However, we have to harmonise policies to develop the corporate bond market and those to facilitate banking credit to ensure capital security for the entire financial system.
This roadmap has set a target, for example, the size of corporate bond will reach 7 per cent of GDP by 2020 and 20 per cent by 2030. What will the Ministry of Finance do to realise these goals?
To achieve this goal, the Ministry of Finance has provided legal framework solutions such as issuing directive decrees and circulars.
The ministry also focuses on developing the primary market to create a good supply for the secondary market. We will also develop the market’s demand side, including calling for the participation of long-term investors, addressing market organisation issues, as well as encourage intermediary institutions to enter the market.
Related to market organisation, we will focus on modernising the trading system and depository system to shorten time for payment, registration and deposit. It will help to improve the liquidity of the market.
Intermediary institutions, including banks, financial companies, securities companies, are required to restructure under the plans of the stock market and credit institution restructuring to improve their governance and financial capacity.
The ministry will cooperate with the State Bank of Việt Nam, market members and the Việt Nam Bond Market Association as well as other related agencies to implement these solutions. — VNS