REVIEW
of
FINANCE -
Apr. 2018
17
Stock Exchanges, Securities Depository Center in
order to increase the competence and effectiveness
of the supervision. In the insurance market,
the regulations on market management and
supervision have become gradually consistent,
contributing to support the market and ensuring
the interests of participants.
In addition to the achievements, the
development of the capital market has revealed
some limitations, leading to the unsustainability
of the market development and to the fact that the
capital market has not fully played its role as the
capital channel of the economy as below:
- The capital market is still depending heavily on
bank credit:
The banking credit market is still the
main source of capital for the economy (Compared
to other countries in the region, outstanding
credits of Vietnamese commercial banks are
higher, leading to higher risks). This is due to
two main reasons: (i) Due to the characteristics
of Vietnamese businesses, they operated based
on debt financing but not equity; (ii) Businesses
preferred borrowing short term capital from
commercial banks to medium and long-term
capital markets. Therefore, commercial banks are
still playing a key role in serving capital for the
economy. Thus, bank loans are the main source
of capital in unlisted businesses. Even when the
stock market develops, commercial banks are also
the key and direct investors in the stock market, as
well as plays a dominant role in the bond market.
- The creditmarket is unstable:
Thebanking system
is raising capital mainly from short-term deposits
and demand deposits, so the stability is not high.
On the other hand, derivative banking products
and other banking services have not been really
innovative. The revenue of the banking system
still relies heavily on credit operations. In the
context of slow recovery in domestic and world
economy, production and business activities
are considerably affected, making it difficult
for the banks to maintain their credit activities.
Meanwhile, the unofficial credit market still exists
in parallel with the banking credit market.
- Although the scale of the stock market is
increasing, the quality of the market has not been as
high as expected:
In general, Vietnam’s economy is
entering a good cycle of growth and the capital
market is focused on, making strong changes in
the size of the market, the number of listed shares
and the number of investor accounts. However,
there has been little improvement in the quality
of the stock. Prices of many newly listed large-
value stocks increased erratically while large-
value stock prices also rose but their liquidity was
still low. This seriously affected the index and did
not reflect the real value of stocks. Being listed
on UPCOM on the one hand has brought many
opportunities for investors, on the other hand,
has created share dilution.
- Investors in the market have not been professional:
Types of the investors in the Vietnam’s stock
market have diversified so far, but in the bond
market, the investors have been the commercial
banks. The investment needs of Banks are
dependent on business activities (lending), which
makes the capital unstable. In the stock market,
capital from individual investors has been quite
huge but not sustainable. This is due to the fact
that individual investors are easily affected
by psychology, rumors or activities of foreign
investors. Meanwhile, potential investors such as
investment funds and insurance companies have
not been fully exploited.
- The bond market structure has been unbalanced:
In the bond market, in addition to local
government bonds which are rarely issued, there
are two types of bonds: (i) Government bonds
(VGBs) and Government-guaranteed bonds; (ii)
Corporate Bonds. Normally, in countries where
financial markets are relatively developed, the
ratio of new corporate bond issues to GDP is
relatively high, which would be the same as that
of the government bonds, even higher than that
of the government bonds. For example, in Korea
the ratio of new corporate bond issues to GDP is
74.3% while the ratio of new government bond
issues to GDP is only 53.2%. However, in Vietnam,
the Government bonds hold the majority market
When the market was firstly put into operation
in 2000, there were only seven securities
companies and no fund management
company until 2017. By 2017, the market of
total chartered capital of VND3,785 billion had
about 76 securities companies active in the
market and 46 fund management companies.
