Vietnam's securities markets, small and weak as they are, have played little to no role in helping local companies raise money, leading to the heavy reliance on bank loans, experts say.
Professor Nguyen Van Thuan of the Ho Chi Minh City Open University's Finance and Banking Department said the corporate bond market has not fully developed yet, and has very few rules to protect investors. As a result, many people are still cautious about investing in bonds.
Trinh Hoai Giang, vice chairman of the Vietnam Bond Market Association, agreed that the legal environment for corporate bonds is still incomplete. There are no standardized procedures for bond issuance and valuation, he noted.
Furthermore, companies are not strong and trustworthy enough to attract a lot of buyers for their bonds, he said, suggesting issuers increase their transparency and offer higher coupons if necessary to make themselves more appealing.
Economist Le Dat Chi said that while it is necessary to gain the confidence of retail investors, the State Bank of Vietnam should also think about new policies that encourage commercial banks to buy corporate bonds instead of just depositing their money with other lenders.
Very few companies have issued bonds in Vietnam so far and most of the bonds that have been issued have short terms of between one
to three years.
According to the Asian Development Bank, as of end-December, Vietnam's total local currency bonds outstanding stood at VND354.7 trillion (US$16.9 billion). But while there was a 19.9 percent year-on-year growth in government bonds outstanding, it was offset by an 8.7 percent contraction in corporate bonds. The Manila-based lender said more corporate bonds matured than were issued, as high inflation rates made it difficult for corporate issuers to come to the market last year.
All corporate bonds outstanding were valued at $1.54 billion, with the 15 largest issuers, mostly banks and real estate developers, accounting for 94.7 percent.
Experts said that when companies cannot raise money via bonds, they have to depend heavily on bank loans, making themselves vulnerable to constantly changing credit policies. As much as 70 percent of capital with Vietnamese companies comes from banks, compared to around 40 percent in Thailand and 35 percent in Indonesia.
Meanwhile, the stock market had been expected to give firms another fund raising option, but the role it played in this regard has been very small, they said.
Thuan said the stock market is suitable for even small and medium companies, but they can only attract investors if the market is growing in a stable manner. So the government should try to restore economic stability and, at the same time, tighten surveillance of listed companies.
Chi said Vietnam's listing requirements are too low compared to other countries, allowing even weak companies to join, dragging down the market as a whole.
"Regulations need to be able to filter these firms out of the exchange. Once you have good products on the market, investors will come," he said.
Vietnam plans to raise the minimum registered capital for companies that want to list on the stock exchange. The country's two bourses, with around 700 listed companies in total, are expected to be merged next year.