Stability key to domestic bond market

Stability key to domestic bond market

Viet Nam needs a stable economic and financial system to create a sustainable bond market in the future, according to experts.

Participants gathered for a workshop, entitled "Macroeconomic stability and sustainability of bond market in Viet Nam" yesterday in Thua Thien Hue.

Viet Nam's economy in 2013 had many opportunities and development challenges. In recent years, the government has directed and managed the economy to achieve many positive results, Vu Bang, Chairman of the State Securities Commission, said.

He was delivering an opening speech at the workshop sponsored by the Deutsche Gesellschaft fr Internationale Zusammenarbeit – GIZ (former German Technical Cooperation – GTZ) and Ha Noi Exchange Board (HNX) in Thua Thien Hue.

The domestic economy has been stable and inflation controlled at 4.63 per cent during the first nine months of this year, he said.

Interest rates from deposits and loans have fallen, while exchange rates of Vietnamese dong and foreign currencies have remained stable and foreign exchange reserves have increased.

However, the economy has been hindered by difficulties, including a lack of stability of the macro economy, difficulty in balancing the budget and a high level of bad debt.

The difficulty in the economy had affected the stock market of Viet Nam, he said. But, on the bond market, the total value of listed bonds stood at VND521 trillion (US$26 billion), up 28 per cent compared with the same period in 2012.

Government bonds are dominant in the Vietnamese bond market. Both and liquidity of the government – guaranteed bond market are very low.

The enterprise bond market does not play an important role, nor is it well managed, said Dr. Michael Krakowski, Chief Technical Advisor of GIZ Macroeconomic Reforms Programme.

Products available in the bond market are limited and simple. New products, especially derivative products which could help to activate the market to improve its liquidity and to act as hedging tools, are not available, or unofficially implemented without any appropriate governing legal framework to regulate, monitor and ensure sound and safe transactions.

All frame conditions for the bond market are currently unstable and lack sustainability, such as a high state budget deficit, difficult budget income sources and high bond interest rates.

About 80 per cent of total volume and value of bond transactions are currently performed by commercial banks. Bond market instability, if any, would be a serious danger for the banking system, as well as for the entire Vietnamese financial system.

"The key solution to achieving a stable, sound and sustainable bond market is to continue efforts aiming at macroeconomic and financial system stability. Restructuring financial markets toward stabilization and strengthening risk management would be the necessary step to be made," said Krakowski.

"In addition, technical solutions would need to be developed and deployed, accordingly. Viet Nam would need to implement proper public debt strategy and develop models to forecast supply and demand in the bond market, which take into consideration key factors, such as budget, public investment, changes in monetary markets and interest rates, as well as requirements of issuing new bonds to pay back existing debt."

"In the medium and long run, Viet Nam would need to gradually move towards lower budget deficits and sustainable balances budgets.

It is also vital for Viet Nam to quickly implement regulations and plans on new bond products and shifting the bond settlement system to the State Bank of Viet Nam in order to ensure market soundness, and improve risk management." 

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