Vietnamese enterprises are in dire need of capital to expand production and business, but the current development of the capital market cannot meet this demand. While the stock market and government bonds are gradually helping raise capital, the corporate bond channel has not developed as expected.

Do Ngoc Quynh, general secretary of the Viet Nam Bond Market Association, spoke with the Vietnam News Agency about the mechanism’s inadequacies, credit ratings and information disclosure on the capital market.

How has the local capital market developed in recent years?

According to the Ministry of Finance, the capital market’s value reached 111 per cent of Viet Nam’s gross domestic product (GDP) by the end of 2018, of which the stock market and corporate bonds made up nearly 80 per cent of GDP and government bonds accounted for more than 30 per cent.

Besides growing in size, Viet Nam’s capital market has seen rapid development in infrastructure, investor base and products trading on the market. These results demonstrate that we’re on the right track when focusing on developing the capital market.

The medium- and long-term capital for businesses still relies heavily on banks. What do you think of this issue?

The capital market has been operating positively in providing medium- and long-term capital for the economy. Lending provided by banks accounts for about 130 per cent of GDP, a bit higher than total size of 111 per cent of GDP of the capital market, including stocks as well as government and corporate bonds.

As medium- and long-term loans made up about 50 per cent of the total credits, the contribution of the capital market will be larger than the medium- and long-term credits provided by banks to the economy.

Though the development of the capital market has not met the expectations of many organisations and individuals, the actual results have shown that it has satisfied basic needs for medium- and long-term capital.

In your opinion, has the stock market has proved an effective channel to raise capital for businesses?

The stock market’s size has reached 70 per cent of GDP, showing its ability to meet enterprises’ demand for capital mobilisation.

Normally, regulations and standards for the stock or bond markets require enterprises to meet certain conditions for quality and operational efficiency if they want to raise capital through these channels. Requirements for transparency, information disclosure and corporate governance are also very important.

In 2018, the value of capital mobilisation and issuance of Viet Nam’s securities market was considered one of the best performers in the ASEAN region, demonstrating the stock market’s ability to supply capital in both primary and secondary markets.

The bond market has also progressed rapidly. How has it developed?

The bond market has developed positively recently. The value of government bonds reached 45 per cent of GDP and the share of corporate bonds is 7 per cent of GDP. We have achieved the Government’s goal for corporate bonds, but the bond size needs to increase by between 5 per cent and 6 per cent to achieve the 2020 target.

Capital mobilisation of both types of bonds has increased rapidly, not only in quantity but also the quality towards longer maturity and lower interest rates.

The market has gained investor confidence thanks to the country’s macroeconomic stability. The successful issuance of a large amount of bonds worth nearly US$10 billion with an average maturity of 12 years is positive development.

In addition, interest rates of successfully issued government bonds have been maintained at low levels. Liquidity in the secondary market has also improved. In 2018, trading value of government bonds averaged about VND9 trillion ($387 million) per day, far exceeding trading value on the stock market.

The corporate bond market has also developed in size, reaching nearly 9 per cent of GDP, surpassing the Government’s target set for the market by 2020. The volume of corporate bond issuance increased significant in 2018 to even greater numbers than seen in the government bond market, according to the Ministry of Finance.

Despite recent developments in the capital market, the corporate bond market is still seen as a difficult channel for small- and medium-sized enterprises to raise capital. What is your opinion on this issue?

Mobilising capital through the banking, stock and bond markets have different requirements and conditions. Each channel will be suitable for businesses of a different size and quality. To raise medium- and long-term capital for strategic investment projects, enterprises need to deal with many problems.

In developed markets, bond issuance is suitable for businesses that have developed and built a reputation. Corporate governance capacity, transparency and professionalism must meet requirements for issuance.

Small enterprises with weak corporate governance capacity will have difficulty issuing bonds, not only in Viet Nam but also in international markets. Businesses should seek professional consultation to select suitable mobilisation channels to ensure efficiency, suitable maturity and low costs.