To develop an effective bond market

(Baonghean) - With the specific goal of total outstanding debt of the bond market reaching 38% of GDP in 2020, of which outstanding debt of the Government bond market reaching 22% of GDP, the bond market guaranteed by the Government reaching 8% of GDP, the local bond market reaching 1% of GDP and the corporate bond market reaching 7% of GDP, creating favorable conditions for entities to mobilize capital on the bond market is very important. However, after 2 years of effective operation, in 2015, this important capital mobilization market needs to have more measures to achieve the set target.

Foreign investors hold about 2% of bonds

According to the State Securities Commission (SSC), the bond market activities in the past 8 months have shown that the organization of issuance, registration, depository, and listing of trading have been quite stable. In particular, for government bonds, government-guaranteed bonds, and local government bonds, registration and depository are carried out at the Securities Depository Center, while bidding, listing, and trading are carried out through the HNX. For corporate bonds, they are mainly issued in a private form. Regarding the system of members bidding for government bonds, since 2012, a system of members bidding for government bonds has been established with basic rights and obligations, and currently this system includes 24 members with 18 commercial banks and 6 securities companies. Regarding the investor structure, the current market includes commercial banks (holding 80% of the total volume of bonds issued on the market), institutional investors (such as insurance companies, social insurance companies, deposit insurance companies, investment funds, securities companies). Foreign investors without a commercial presence in Vietnam only hold about 1 - 2% of the volume of bonds issued - Chairman of the State Securities Commission Vu Bang said.

Nghe An General Friendship Hospital was built partly from government bonds. Photo: Nguyen Khoa

As of September 23, 2015, the State Treasury mobilized VND127,158.7 billion to offset the state budget deficit and development investment, of which, the 5-year term was VND63,811.3 billion, the 10-year term was VND32,948.0 billion, the 15-year term was VND26,169.4 billion, and the 20-year term was VND4,230 billion. In addition, the State Treasury also issued VND21,130 billion to mobilize capital to offset the temporary state budget deficit with terms of 13 weeks and 26 weeks. Regarding secondary transactions, the average trading volume in the first 8 months of 2015 was VND4,102 billion/session. In general, the results of issuing government bonds are still low compared to the requirements.

One of the reasons for this situation is the lack of conditions for the issuance of government bonds in the domestic market to be highly effective. According to Deputy Director of the Department of Banking and Financial Institutions (Ministry of Finance) Phan Thi Thu Hien, in order to be consistent with market development and international practices, creating favorable conditions for entities to mobilize capital in the bond market, in 2015, the Ministry of Finance issued the second generation of circulars guiding the issuance of government bonds, government-guaranteed bonds and local government bonds. It can be said that the legal framework for this market has been fully completed from laws (such as the Law on Public Debt Management, the Law on State Budget) and guiding documents. Notably, the regulations on market bidding members have been timely improved, meeting the practical requirements of the bond market - Deputy Director of the Department Phan Thi Thu Hien commented.

However, from the actual operation of the market, new issues have also arisen that need to be improved to support market development. Such as: further improving the rights and obligations of bidding members; allowing the issuance of new products such as bonds without periodic interest payments; perfecting the process of guaranteeing and bidding for the issuance of government bonds from the time of notification, payment, registration, depository, listing and trading of bonds to shorten the time for registering, depository, listing and trading of government bonds; improving the bidding schedule and maturity date of government bonds for the convenience of investors...

Completing the legal framework

To overcome the difficulties of the TTTP, for Government bonds, the Ministry has issued regulations to improve the rights and obligations of bidding members; allow the issuance of new products such as bonds without periodic interest payments; complete the process of guaranteeing and bidding for the issuance of Government bonds (time of notification, payment, registration, depository, listing and trading) to shorten the time for registering, depository, listing and trading of bonds; improve the bidding schedule and maturity date of Government bonds to facilitate investors in participating in bidding and support the management of the State Treasury's treasury; provide detailed regulations on the method of retailing bonds.

For Government-guaranteed bonds, the Ministry has issued improved regulations such as: more detailed documents on issuance guarantee documents; complete regulations on registration and listing; clearly specify the content, time limit and method of information disclosure of issuers to increase transparency and facilitate investors when participating. For local government bonds, the Ministry has issued more detailed regulations on documents and issuance plans; on methods of repurchase and exchange; on information disclosure regime before and after issuance. All new regulations aim to facilitate localities to mobilize capital through bond issuance, while enhancing the transparency of local governments to attract investors' participation.

Regarding corporate credit rating services, in 2014, the Ministry of Finance submitted to the Government regulations on credit rating services to promote the development of corporate credit rating services. On that basis, the Prime Minister issued a plan for the development of credit rating services until 2020, with a vision to 2030. It is certain that in its viewpoint and purpose, the Ministry of Finance will continue to build and develop credit rating services in a sustainable, highly liquid manner, and gradually approach international practices and standards to become an important, safe, and effective capital mobilization channel for the economy. - Deputy Director of the Department Phan Thi Thu Hien said.

According to Chairman Vu Bang, the solutions for developing the bond market in the coming time include many basic solutions. First of all, it is to continue implementing solutions for market development in accordance with the roadmap for developing Vietnam's bond market until 2020, focusing on perfecting the legal framework in line with market development and international practices. For government bonds, the Ministry will continue to study and issue new products to diversify products on the market; study the liquidity support mechanism to establish a market maker system from the system of members bidding for government bonds. At the same time, it will continue to study and submit to the Government for promulgation of the Decree on Voluntary Pension Fund to promote long-term investment demand in the market.

Reduce dependence on commercial banks

Regarding market solutions, the Ministry of Finance continues to coordinate with the State Bank in operating the fiscal and monetary markets, ensuring that bond issuance interest rates and monetary interest rates are stable and have few major fluctuations. The second is to develop the investor system, encourage the development of a long-term investor system in the market (such as pension funds, insurance companies, etc.) which will help gradually reduce dependence on the commercial banking system. The Ministry will continue to build a roadmap to attract foreign investors with fundamental solutions such as: stabilizing the macro economy; building and developing derivative bond products such as contracts, terms, etc. to prevent risks in the bond market; enhancing transparency in the market through building a specialized electronic information page for the bond market with full market information data.

In addition, it is necessary to develop a market maker system based on a system of members bidding for government bonds with many solutions; develop an information technology system to ensure smooth issuance and trading of bonds; shorten the time from issuance to listing, creating liquidity in the market. In addition, the market is also in great need of continuing to build a data information system of the corporate bond market to enhance transparency and promote the development of this important market - Chairman Vu Bang affirmed.

Red River