How to develop the capital market?

Imbalance

According to many experts, the capital-finance market of Vietnam is still limited, unsustainable and does not fully play the role of a capital channel of the economy. The mobilization and allocation of medium and long-term investment capital is based mainly on the commercial banking system. The involvement of non-bank institutions in the economy has not been desirable. This is risky and volatile, especially in the context of cross-ownership, cross-investment, bad debt and restrictions on risk management of commercial banks.

In addition, the size of the stock market increased rapidly but unstably. It has not become the most important capital channel for enterprises. Bank credit has been an important and dominant role, in spite of the development of the stock market and non-bank institutions, which creates imbalances in the capital market. Because of the restrictions on capital market, the difficulty of accessing capital for enterprises is also one of the reasons leading to the use of "black credit" in business activities.

The limitations of the capital-finance market have also been emphasized by Deputy Prime Minister Vuong Dinh Hue at the recent Capital-financial Markets Forum. Accordingly, asserting that the economy is in a "thin capitalization" state, the Deputy Prime Minister said that many businesses operate mainly thanks to bank loans with high financial costs, leading to many difficulties for them. Even banks, which provide the capital for the economy, are also in the same situation.

Regarding capital channels, according to Ms. Nguyen Thi Hong, Deputy Governor of the State Bank, in recent years the stock market has had many breakthroughs, the stock market capitalization in 2017 increased over 70% of GDP. For the monetary market, in general, the Credit/GDP ratio is about 130%. However, Ms. Hong said that the size of the corporate bond market was small, only 1.25%, while the size of government bonds still dominates. These are short-term capital sources, so the demand for medium and long term loans is very high, putting pressure on credit institutions.

With the current capital, affirming that the ratio of short-term capital has improved significantly over the past five to six years, the representative of the State Bank also said that the proportion of short-term capital currently accounts for 70%. This showed that the pressure on medium and long-term lending to the economy is still high and the credit institutions face the risk of termination.

Talking about the reason, Mr. Tran Van Dung, Chairman of the State Securities Commission stated that there are three reasons: First, the market development depends on the stage of the country’s development when moving from the Subsidy period to the multi-component economy. The second reason is the social awareness. Third, there is no foundation for development, especially, plans and strategies must be suitable for each stage of development.

Ensure the investors’ rights

Proposing solutions to expand long-term capital for Vietnam, Mr. Ketut Kusuma, senior expert on capital markets (World Bank) stated that, one of the issues that needs to be addressed in the coming time is the corporate bond market of Vietnam.

This is the market owning growth potential and most of its growth is reflected in the private market. In addition, Mr. Ketut Kusuma emphasized that the problem is how to mobilize idle capital among people so that people can feel secure when investing in different channels such as stocks, bonds, bank deposits ... and "when we mobilize this capital efficiently and fully, we will ensure long-term capital and meet the loan demand of the economy".

In order to mobilize the idle capital among people, Mr. Ketut Kusuma recommended that, "It is important to strengthen the transparency of information, to continue the reform of the government bond market, to promote the private investment system, to expand the retirement fund, the social insurance fund, to issue public bonds widely, and to expand the size of the state funds, especially the social insurance fund and retirement fund.”

Regarding this issue, another expert from the World Bank, Mr. Alwaleed Fareed Alatabani, Chief Financial Officer of Vietnam, said that Vietnam still has about 60 billion USD of idle money in the population. This is a large potential for economic development that needs to be utilized and exploited in order to have more capital for long-term investment. Therefore, it is necessary to create a good investment environment, to facilitate the development of Vietnam's bond market and securities market.

Many opinions suggest that to develop Vietnam's capital market, external force is important but internal force is decisive. Therefore, the mobilization of resources from domestic private investors plays a very important role. Mr. Tran Van Dung, Chairman of the State Securities Commission, said that in the past, Vietnam's economy was heavily dependent on ODA and FDI. However, in recent years, the role of internal resources has been increasingly manifested, especially in the context of reducing ODA in the coming time. The capital market needs policies to balance the credit market, stock market and bond market. In addition, the issue that is rarely mentioned but equally important is the development of individual investors. To develop them, Vietnam must develop all kinds of funds, while ensuring the interests of the investors.