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Economic Sector

Last updated: Monday, September 25, 2017

 

New Progress in Bond Market Development

Posted: Tuesday, September 05, 2017

In an effort to develop capital markets towards international standards, the Government of Vietnam recently announced a roadmap for bond market development in 2017 - 2020, with a vision to 2030.

Outstanding debts equal 45 per cent of GDP in 2020
According to the roadmap, outstanding debt in Vietnam’s bond market will reach some 65 per cent of gross domestic product (GDP) in 2030. And, the outstanding debt of the Government bond, Government-guaranteed bond and municipal bond markets is expected at 38 per cent of GDP in 2020 and 45 per cent in 2030. The rest is corporate bond debt.

The roadmap aims for stable bond market development, a complete and consistent structure of supply and demand, a bigger investor base, a bigger size and better quality of Vietnam’s bond market with a diverse range of products and professions, a public, transparent and effective bond market performance, active integration into the global market, and a gradual approach to international standards and practices.

Specifically, the average term of local Government bonds will be 6 - 7 years in the 2017 - 2020 period, and 7 - 8 years in the 2021 - 2030 period. The average trading volume of Government bonds, Government-guaranteed bonds and local government bonds per trading session will increase by 1 per cent of the outstanding debt of bonds listed on the stock market in 2020 and 2 per cent in 2030. Meanwhile, the proportion of Government bonds, held by insurance companies, social insurance funds, pension funds, investment funds and non-banking financial institutions, will rise to 50 per cent in 2020 and 60 per cent in 2030.

In order to achieve these goals, the Government will finalise a policy framework for the bond market, develop primary and secondary markets, develop and diversify the investor system, and develop intermediary institutions and market services from 2017 to 2020.

As regards the secondary market, according to the roadmap, the Government will renovate the organisational model of the bond market, upgrade the trading system of government guaranteed bonds and local government bonds at domestic stock exchanges, ensure the timely and accurate reporting of transactions to build a standard yield curve on the market, and enhance the responsibility of secondary market members in transaction reporting.

Promoting corporate bond market
As an active fundraising channel for businesses, the corporate bond market plays a very important role in capital market development.

However, Vietnam's corporate bond market is still very small scale. By size of the economy, existing corporate bonds to the country’s gross domestic product (GDP) increased from 3.24 per cent in 2014 to 3.39 per cent in 2015 and 5.25 per cent in 2016. Despite the strong growth trend in recent years, the ratio of the current corporate bond market to the economic size is still rather modest relative to other countries in the region. Most Vietnamese companies still rely on banks as the main capital channel.

The reality is attributed to low liquidity of corporate bonds, limited information availability to investors, and undeveloped corporate ratings system where investors can rely for bond assessment.

Under these conditions, the roadmap states that the outstanding debt of the corporate bond market will reach about 7 per cent of GDP by 2020 and about 20 per cent by 2030. In the roadmap, the Government assigned tasks of researching and developing corporate bond information portal at stock exchanges to provide information on issuance and trading of corporate bonds and boost secondary corporate bond transactions.

With this roadmap, the Vietnamese bond market in general and the corporate bond market in particular will gradually become more attractive to investors, reduce the current dependence on credit institutions and upgrade fundraising capacity of enterprises.

Nguyen Thanh








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