Requirements for "reforming" the stock market and corporate bonds

DNHN - Activities to rectify the stock market and corporate bond markets in the recent past have been critically necessary for a healthy market economy's capital mobilisation channel.

The market needs sustainable growth

Economic expert Dinh Trong Thinh told the Government Electronic Newspaper that while the bond market for listed businesses has relatively acceptable laws, there are still a number of issues that need to be resolved prior to issuance. bonds issued by unlisted businesses. 

From 2019 to now, the corporate bond market (DN) has grown stronger than expected. According to a report by SSI Securities Company, the total value of corporate bond issuance in 2021 will reach VND 723,000 billion. The size of the corporate bond market has increased sharply from 4.93% of GDP in 2017 to 16.6% of GDP in 2021. 

SSI estimates that, although the credit channel is still the main capital mobilization channel for enterprises, the securities channel is increasing. At a strong speed, the size of the stock market and corporate bonds increased rapidly from 68% in 2020 to the equivalent of 88% (2021) compared to the total credit outstanding of the whole economy.

It will account for about 1.4 million billion VND of the total amount of corporate bonds in circulation at the end of 2021, representing an average annual growth rate of 46 percent from 2017 to 2021. 

With VND 318,200 billion, real estate enterprises are the top issuers, rising 66.3 percent from 2020 and accounting for 44 percent of total issuance in 2021, followed by the banking sector and a few other sectors. 

According to Mr. Dinh Trong Thinh, the purpose of establishing the corporate bond market is to lessen businesses' reliance on bank credit; nonetheless, it is critical to monitor both the growth rate and the market share of this market. Notably, a sizable fraction of corporate bonds with high interest rates fall into the "3 no's" category: no guarantee, no credit rating, and no collateral (Special Assets).

According to Mr. Dinh Trong Thinh, the purpose of establishing the corporate bond market is to lessen businesses' reliance on bank credit; nonetheless, it is critical to monitor both the growth rate and the market share of this market. Notably, a sizable fraction of corporate bonds with high interest rates fall into the "3 no's" category: no guarantee, no credit rating, and no collateral (Special Assets). 

Expert Dinh Trong Thinh said:”Furthermore, we must be candid: the market is growing too quickly, while management policies are inadequately covered; policy adjustments have not kept pace with actual events, resulting in the moves. The government's recent sharp reprimand is also critical”.

Close surveillance and early intervention

Expert Nguyen Tri Hieu agreed, stating that the operations of buying and selling corporate bonds in the secondary market are not strictly regulated. 

This expert expressed his opinion:”While it is necessary to prosecute offenders in connection with FLC or Tan Hoang Minh Group incidents, it would be preferable if there were sufficient monitoring systems in place to deter persons from aiming to harm the market”.

Regulatory authorities have also issued several warnings and implemented a variety of harsher management procedures and rules in the past to prevent criminal profiteering from legal loopholes that create market dangers. 

Specifically, the State Bank (SBV) issued Circular 16, dated November 10, 2021, regulating the purchase and sale of corporate bonds by credit institutions and foreign bank branches. Among them, there are some stricter regulations. 

For example:"a credit institution that buys and sells corporate bonds must have an internal credit rating system and must issue internal regulations on buying and selling corporate bonds in accordance with this Circular and the provisions of relevant legislation"; 

“A credit institution may purchase corporate bonds only if it has a bad debt ratio of less than 3% according to the most recent classification period under the State Bank of Vietnam's regulations on asset classification, deduction level, method of setting up risk provisions, and use of risk provisions in credit institution operations prior to the time of purchasing corporate bonds."

The Ministry of Finance is also developing a Decree amending Decree No. 153/2020/ND-CP of the Government: Regulations on offering and trading corporate bonds privately in the domestic market and offering corporate bonds to the international market. economic.

Enhance audit effectiveness

Experts Dinh Trong Thinh stated that many firms' financial infractions have lacked transparency in recent years, in part because many audit reports have failed to effectively alert investors of risks, particularly those posed by financial institutions. Recently, the company has been "whispered." 

Expert Nguyen Tri Hieu stressed the relevance of corporate bond rating companies, stating that they provide an important "defensive layer" against the hazards of disinformation faced by investors. 

According to Mr. Nguyen Tri Hieu, there are now just two firms in Vietnam eligible to provide credit rating services: FiinRatings and Saigon Phat Thinh Rating Joint Stock Company. The establishment of a credit rating system will assist market participants in assessing risks when purchasing corporate bonds. 

Sharing the concern and outrage expressed by many investors following the arrest of the leaders of a number of businesses and subjects in connection with the issuance of corporate bonds, expert Nguyen Tri Hieu stated that the Government's actions to correct the market are absolutely necessary to ensure the market's long-term health and conformity with established practises in developed countries. 

According to this expert, with sound fundamentals, the stock market, as well as corporate bonds, will continue to be a significant source of finance for Vietnamese firms in the long run. 

Expert Nguyen Tri Hieu noted: "The market's common goal to be honest, to vigorously correct and increase the efficacy of market oversight, has a very strong psychological deterrent impact, instilling in subjects an expectation of future manipulation.

When we examine the Government's policies in the past: measures to assist firms and individuals affected by COVID-19, policies on credit (prioritising capital for genuine business and production), tax exemption and reduction, we see the Government's consistent systematic views. 

Not in a blanket manner, but selectively, by levelling the playing field, encouraging enterprises to be prioritised, healthy business people to be prioritised, substantial activities to be prioritised, and carefully according to the law".

 Huy Thắng