According to the Asian Development Bank (ADB), Vietnam’s corporate bond market has seen positive growth in recent years with growth rates of 29.5 percent and 30.1 percent in 2017 and 2018 respectively.
Corporate bonds are considered one of the attractive investment channels for many individual investors and investment funds in 2018 when Vietnam stock market experienced a relatively difficult year with the index. VN Index fell more than 10%. The problems of war and the rise of interest rates by the Federal Reserve (FED) have made negative impacts on the global stock market and Vietnam.
From now on, the stock market has always been considered an attractive investment channel with high profit expectations, but with high risks. Requires investors to participate in the market not only to invest capital, but also to put effort and time to learn and monitor the market with many emotions. Conversely, savings deposit is considered a very safe and idle investment channel. However, the accompanying profit is also low corresponding to the low risk level with interest rates around 6.5 percent to 7.5 percent per year. Therefore, corporate bonds are now seen as a harmonious investment channel between risk and profit, with average returns of nine percent to 11%, higher than savings and lower than risk market share.
Not only reconciling the risks and profits of investors, bonds are now considered as an attractive capital mobilisation channel for businesses due to lower costs than corresponding long-term loans. Especially in the current situation, when SBV started tightening credit room, especially credit for the real estate industry.
Typically, in the past year, banks and real estate companies also boosted the mobilisation of capital from the bond market like the issuance of Sun Shine Group with a scale of up to ten trillion dong for four-year term. Vingroup and its subsidiaries have also stepped up bond issuance in the past year with a quite large scale such as Vinpearl issuing $325 million, VHM also issued seven trillion dong and SDI issued 2.6 trillion dong. There are also issuances of CII, DXG, NLG…
Not only real estate enterprises, but also some businesses in other sectors have started to attract capital through this channel as PAN group’s issuances worth 1.135 trillion dong or recently the issuance of REE in early 2019 with a value of 2.318 trillion dong.
A developed bond market not only helps investors as investors and sellers as businesses find a balance of benefits, but also helps share the pressure on credit demand for the current banking system. Currently SBV is pushing banks towards Basel II with Circular 41 demanding stricter capital adequacy ratios (CAR) effective from January 1, 2020. This means that banks are facing pressure to raise Tier 1 capital or to reduce credit growth in the future. According to statistics from SBV, credit growth in the first three months of 2019 was only about 2.28%, lower than the rate of 3.5 percent in the same period of 2018 and 4.3 percent in the same period in 2017.
Just like diversifying portfolio, when the bond market thrives, it will help diversify capital markets in Vietnam and will help disperse credit risks, reduce risks and credit pressures on the banking system. Thereby, it will help us avoid the risk of bad debt system from banks as in the period of 20092012 when most of the capital market depends on bank credit.
However, if compared to other countries in the region, the size of Vietnam’s corporate bond market is still modest in size and liquidity compared to other countries in the region when the size of the corporate bond market only accounts for 1.8 percent of GPD. If viewing from a positive perspective, it can be seen that the geographical potential and development potential of the Vietnam bond market is quite large.
To further promote the bond market, it is necessary to think that management agencies need to have policies and solutions to solve some shortcomings that hinder the current development. Bonds are also a type of asset, and liquidity is one of the important factors to attract investors. However, in fact, the liquidity of corporate bond market is still limited for many individual investors, and there are not many members creating the market. The second point is that Vietnam does not have independent credit rating agencies yet. This will also affect investment decisions because of low levels of access to information. So the selection of bonds to invest today still depends heavily on the prestigious subjective assessment of issuers and distribution units.
