Stock, bond market development for stable capital supply

10:05 | 03/06/2019 Finance - Banking

(VEN) - The banking system remains the main source of capital for the economy. Therefore, further development of the capital market, especially stocks and bonds, is needed in order to reduce the economy’s dependence on bank credit.

stock bond market development for stable capital supply

Imbalance in the capital market

Outstanding credit of the banking system reached more than 130 percent of the country’s gross domestic product (GDP) in 2018. The value of the stock market at the end of 2018 equaled 71.6 percent of GDP, while total value of the bond market made up 20.3 percent of GDP. These figures show that money supply for the economy is still largely based on credit institutions, especially medium- and long-term capital.

State Bank of Vietnam (SBV) Deputy Governor Dao Minh Tu said there is an imbalance between capital supply and demand. While enterprises are in great need of capital for their trade and production activities, the capital market is unable to meet the demand. The banking system remains the main source of medium- and long-term capital for the economy, at some 50.6 percent.

According to SBV Credit Department Director Nguyen Quoc Hung, the lack of reports on long-term business plans and capital use, transparent information disclosure, clear financial statements, and conditions for initial public offerings (IPOs) has made it difficult for enterprises seeking capital for their trade and production activities. These shortcomings have placed great pressure on the credit institution system and increased its risks.

Solutions

To meet the needs of medium- and long-term capital for enterprises in particular and the economy in general, the development of the stock market and the corporate bond market must be pursued in order to reduce the dependence on bank loans.

State Securities Commission (SSC) Deputy Chairman Pham Hong Son said the Vietnamese stock market has developed rapidly and relatively sustainably at an average rate of 25 percent per year.

For the corporate bond market, the Ministry of Finance has directed the Hanoi Stock Exchange to build an information center on corporate bonds, Son said.

SBV Deputy Governor Dao Minh Tu said the central bank would coordinate with the Ministry of Finance and other

ministries and agencies to enhance the financial market’s restructuring to assist private businesses in raising capital

from the stock market.

Duy Minh