Concerns are emerging as the corporate bond market has declined rapidly, shrinking by a third in the past few years, especially as more and more businesses, due to difficulties in issuing bonds, have turned to bank loans. This situation could lead to major risks regarding maturity and liquidity for the banking system.
Concerns are emerging as the corporate bond market has declined rapidly, shrinking by a third in the past few years, especially as more and more businesses, due to difficulties in issuing bonds, have turned to bank loans. This situation could lead to major risks regarding maturity and liquidity for the banking system.
After a period of hot growth, with an average growth rate of 45%/year in the period 2018-2021, the corporate bond market in Vietnam suddenly plummeted from 2022 due to changes in the business environment, legal framework and some incidents related to violations of issuance regulations. The total outstanding corporate bond debt is currently about 1 million billion VND, equivalent to 10% of GDP, a sharp decrease compared to 15% of GDP in 2022. This figure is very low compared to countries in the region such as Malaysia (54% of GDP), Singapore (25%), Thailand (27%)...
The rapid decline of the bond market has caused the National Assembly's Economic Committee to express a series of concerns in its recent socio-economic review report. In fact, the market is worrying not only because of the reduced issuance scale, but also because of a series of other factors.
Firstly, the issuance structure is not reasonable, with private issuance accounting for nearly 90%, while bonds issued to the public only account for more than 10%. This figure shows that market transparency is problematic. In addition, the small amount of bonds issued to the public also limits businesses' ability to access capital from public investors.
Second, the bond market is gradually becoming a "playground" for financial institutions, instead of becoming an official capital mobilization channel for businesses.
Specifically, in September 2024, more than 80% of bonds issued were from banks, the remaining few were from real estate and service enterprises and almost no manufacturing enterprises participated in mobilizing bond capital.
Third, the bond term is too short (mostly under 5 years), creating great maturity pressure on businesses and is not suitable for long-term capital needs for infrastructure projects and economic development.
Fourth, the bond market still lacks transparency as investors are like “blind passersby”. Most individual bonds in the market are not credit rated, although the State Securities Commission requires enterprises to disclose information, the level and quality of information provided is still sketchy.
Fifth, the bond market lacks tools to measure risk and assess the possibility of bond default, making investors - especially foreign investors - reluctant to invest.
Most worryingly, the amount of newly issued bonds has now halved compared to the peak period and is much smaller than the medium and long-term capital demand of enterprises. This situation is putting pressure on the banking system again. Currently, banks mainly mobilize short-term capital, but have to serve high medium and long-term capital demand, leading to constant maturity and liquidity risks.
Vietnam’s credit/GDP ratio is among the highest in the world, and has been repeatedly warned by the International Monetary Fund (IMF) and the World Bank (WB). However, the decline of the bond market has made businesses increasingly dependent on credit. As a result, this ratio has not only decreased, but has tended to increase in recent years.
If in 2021, Vietnam's credit/GDP ratio was 123%, by the end of 2022 it was nearly 125%, then by the end of 2023 it had reached 132.7%. Moody's - the world's leading organization specializing in credit risk assessment, believes that this ratio poses a potential risk of instability to Vietnam's macro economy.
Recently, the Ministry of Finance has taken many measures to tighten the bond market, issuing a series of stricter regulations, but the operator has yet to find any effective solutions to revive the bond market. In the Draft Law amending 7 laws submitted to the National Assembly this session, the Ministry of Finance (the drafting agency) intends to remove individual investors from the private bond market to avoid risks. This is a controversial issue, because it will further reduce the liquidity of the bond market, especially when there is no truly effective mechanism or policy to attract institutional investors.
Obviously, the decline in the corporate bond market is posing a major challenge to meeting the economy's medium- and long-term capital needs, especially in the context of the economy having a huge capital need for infrastructure development, real estate, other manufacturing sectors and supporting the green energy transition.
In that context, finding solutions to regain investor confidence and help the bond market recover and develop sustainably is urgent. This requires concerted efforts from regulatory agencies, financial institutions and bond issuers themselves.
Source: https://baodautu.vn/vuc-day-thi-truong-trai-phieu-d228248.html
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