Domestic capital market needs to develop further for higher demand

May 06, 2021 - 07:49

Việt Nam's capital market has witnessed remarkable development but has yet to meet the demand of enterprises. Đỗ Ngọc Quỳnh, secretary general of the Vietnam Bond Association, spoke to Việt Nam News about this issue.

Đỗ Ngọc Quỳnh

Việt Nam's capital market has witnessed remarkable development but has yet to meet the demand of enterprises.

Đỗ Ngọc Quỳnh, secretary general of the Vietnam Bond Association, spoke to Việt Nam News about this issue.

What do you think about the ability of domestic enterprises to access capital?

Vietnamese businesses now have better conditions to access capital than before because besides the commercial banking system, in the past 20 years, with the renovation process of the domestic economy, Việt Nam has seen comprehensive development of its capital market with the growth of the stock market and the bond market.

Thus, besides commercial banks, enterprises can now mobilise capital through issuing shares and bonds in the market. Up to now, the market capitalisation of the stock market has been equal to 90 per cent of GDP while the market capitalisation of the bond market has reached 50 per cent of GDP, including 40 per cent from government bonds and 10 per cent from corporate bonds.

In addition, in recent times, businesses have approached foreign capital with many other forms of capital mobilisation.

How have fluctuations of interest rates at credit institutions from the beginning of the year affected the capital market?

In the domestic capital market, the interest rates of banks generally have negligible fluctuations and stood at low levels, creating conditions for businesses to mobilise capital in the market.

Meanwhile, on the stock market in the first quarter of this year, the number of investors opening accounts reached a record high compared to 2020 and previous years. This shows increasing demand of investors to participate in the stock market. That has helped businesses mobilise capital more smoothly.

For the bond market, in the first quarter, businesses often had difficulty issuing bonds because investors waited for the audit report because after this report, the bond issuance will be more favourable. 

In general, low interest rates have created favourable conditions for capital mobilisation in the market both in commercial bank loans and the stock market.

How is the capital market developing?

Việt Nam's capital market is entering a stage of development with many sources of capital from the banking system, the stock market and from bond issuance.

In the past, the capital market depended on commercial banks. The commercial banking system often mobilised short-term capital and lent both in the medium and long-term. The ratio of medium and long-term loans to total outstanding loans has been often very high, which meant that commercial banks have had difficulty in liquidity and poor financial market system stability.

After 20 years of capital market development, capital from commercial banks account for 60 per cent of the capital market, the capital from the stock market about 24-25 per cent and the bond market, 12-13 per cent. The rest is from the insurance market.

The development of the stock and bond markets in recent years has made the development of Viet Nam's capital market healthier. The capital value of the stock and bond markets is higher than the value of the banks' medium- and long-term loans.

This is a major change in the capital market over the years.

Since the beginning of this year, the stock market has passed many historic highs but still has problems in operating. How should the market develop in the future?

The stock market is developing positively and entering a period with more opportunities for development with many factors such as the maturity of the regulatory body, the perfection of the system of policies and mechanisms, and more understanding of the investors, and scale of investment.

The development and changes in quantity and quality of the economy, including the development of the enterprise system, including state-owned enterprises, private enterprises and FDI enterprises have had a positive effect on the capital market. The bright spot is the positive change of private enterprises.

The equitisation of state-owned enterprises, the development of private enterprises and the participation of foreign enterprises have helped the stock market develop and increase the quality of the economy. 

In addition, Viet Nam has 100 million people, and there are more than 50 million accounts of individuals at commercial banks. Meanwhile, only three million accounts have been opened at securities companies. In fact, only about 500,000 accounts are in operation.

Therefore, the State should have a policy to continue mobilising people's capital to increase capital for production and business enterprises and help people increase investment opportunities in the market, creating healthy development in the economy.

How is the corporate bond market developing?

The corporate bond market grew strongly in 2019 and 2020. In recent years, the government bond market has created a standard interest rate system for Việt Nam to develop the corporate bond market. The legal framework has been continuously improved, supporting businesses to participate in the bond market. 

The Bond Market Association has also been established to raise awareness and support for enterprises in the process of participating in the bond market.

In 2020, businesses issued more than VNĐ400 trillion of corporate bonds in the market. The corporate bond channel is a very important capital mobilisation channel for businesses. However, this is only the beginning as the scale of the corporate bond market is now very small relative to GDP. The potential for the corporate bond market is enormous. 

In 2020, the Government amended the legal framework governing bond market operations. This amendment will change from quantity to quality of this market to create more sustainable and healthy development for the bond market.

State management agencies continue to improve the legal system and infrastructure to create transparency in the governance of this market. This is very important because the legal system that sets the standards and monitoring system requires businesses that want to participate. This will also create confidence for domestic and foreign investors.

Meanwhile, businesses need to diversify their products to help them enter the market more smoothly. — VNS