Efficient bond market required for growth, infrastructure
Efficient bond market required for growth, infrastructure
Laos lacks a comprehensive and efficient bond market to finance the country's economic growth and massive infrastructure needs, a senior officer from RAM Holdings Berhad said.
Speaking at a seminar in Vientiane yesterday on developing the Laos bond market for growth and development was RAM Holdings Berhad Group Chief Executive Officer Datuk Seri Dr K. Govindan.
He said Laos has engineered remarkable growth, with its economy having expanded at an average annual rate of 8 percent since the global financial crisis.
This is one of the region's best and least volatile growth performances. The country has also made significant progress in market reforms and became a member of the World Trade Organisation in early 2013.
Despite the strong performance, Laos has its share of challenges, like most countries. One of these is concern over Laos' external position and the rapid credit expansion in its banking sector as well as considerable foreign-currency lending.
“These issues are related to the lack of a deep and efficient bond market to finance the country's economic growth and massive infrastructure needs,” Dr Govindan said.
He said Laos is at a stage where it has large infrastructure needs. These infrastructure developments and projects are mostly suited to financing by the local currency bond market due to their and long payback periods.
While Laos has a fairly well established banking system, banks are not designed or able to satisfy such large-scale and long-term financing.
“It is now opportune for the development of a bond market, together with the equity market, to reduce dependence on the banking system and mitigate systemic risk in the financial markets,” he said.
Building a local currency bond market in Laos will take time and a firm commitment from the government. While the Malaysian experience may not be entirely relevant for Laos, some of the key requirements should be similar.
They include a conducive legal and regulatory framework, establishing a benchmark yield curve, reliable and efficient trading and settlement systems, high quality, independent credit rating agencies, tax efficiency and a simple approval process, Dr Govindan said.
Deputy Governor of the Bank of the Lao PDR Mr Sonexay Sithphaxay said since 1986 the finance sector in Laos has been actively developed and transformed. The establishment of the Lao Securities Exchange (LSE) in 2010 was one of these developments and it was a big step in the development of a finance sector to have a balance between the financial system and the capital market.
The LSE has contributed by raising long-term capital and improving the strength of state enterprises in finance, business administration, production and marketing, he added.
Mr Sonexay said currently the Lao capital market has only stock products, it doesn't have bonds, which are a basic type of security product that will create a variety of opportunities for investors.
A bond market is a tool for raising long-term capital for a government as well as state enterprises, in particular raising capital for necessary infrastructure development for both the government and private sector in developing countries.
“Therefore, development of a bond market is essential for effective capital market development,” he said.
The seminar was also attended by the Secretary General of the Lao Securities Commission Office Ms Vatthana Dalaloy, Malaysian Ambassador to Laos Mr Dato Than Tai Hing and representatives from Maybank and various ministries.
vientiane times
