KUALA LUMPUR, Nov 10 (Bernama) -- Vietnam wants to emulate Malaysia's model in developing the bond market to fund its expanding economy and growing appetite for long-term infrastructure funds, said Vietnam Bond Market Association (VBMA) General Secretary, Do Ngoc Quynh.
The country has been relying on bank financing, but with demand for growth, especially funding for medium- to long-term infrastructure projects, it needs to further establish its debt market, as banks constrained by a single customer limit cannot lend unless they increase their capital.
Quynh noted Malaysia is currently the best in the region in terms of bond market size relative to Gross Domestic Product (GDP).
"I think the government and the central bank of Malaysia have performed very well in developing the domestic bond market.
"We got very good support during our visits to Bank Negara Malaysia, the Securities Commission (SC), PPKM (Financial Markets Association of Malaysia), bankers and especially RAM (Holdings Bhd), who shared with us their experiences on how the Malaysia bond market was developed," he told Bernama in an interview here, after completing a two-day field trip.
Quynh led a 24-member delegation comprising key officers from the regulatory authority, the Ministry of Finance, State Bank of Vietnam, Hanoi Stock Exchange, as well as some of Vietnam's banking and investment organisations.
Quynh, who is also the Head of Treasury for the Bank for Investment and Development of Vietnam (BIDV), said his country's bond market development is at a gestation stage.
"We are in the midst of improving the quality of offerings, restructuring the outstanding bonds in the market, reforming the issuing process and expanding the investor base, as commercial banks are the major players with over 80 per cent holdings.
"We have so far relied on domestic and local investors especially the commercial banks, and don't have many foreign players like in Malaysia," he said.
Vietnam's total bond market relative to GDP was only at 22 per cent as at December last year, while Malaysia's total bond market size stood at US$315 billion and relative to GDP was 103 per cent, the third largest in Asia after Japan and Korea. (US$1 = RM4.35).
Vietnam's bond market as at June 30, 2015 stood at US$43 billion, with government bonds accounting for 98.7 per cent and corporate bonds only 1.3 per cent.
The percentage ratio of Malaysia's corporate bonds is currently about 40 per cent and government bonds around 60 per cent, and the country can rightly claim to be the global capital of sukuk (Islamic bonds) with more than 60 per cent of global sukuk issuances taking place in Malaysia.
Vietnam's corporate bonds issued by banks stand at US$13.16 billion, mostly for real estate lending.
Its banking system total bank loans as at December last year stood at US$189 billion with corporate loans accounting for 75 per cent, quadruple the size of its total bond market, suggesting significant opportunities for conversion and growth.
"With the development of Vietnam's economy, we see more and more big private companies doing quite well in business and improving credibility in the market, and they are in a better position to issue corporate bonds.
"State-owned enterprises like Vietnam Electricity (EVN), Vinacomin TKV (Vietnam National Coal and Mineral Industries Group) and PetroVietnam, and private companies like VinPearl in real estate, should be well received by investors if they issue bonds," said Quynh.
"A lot of stakeholders in Malaysia can do consultancy services for different stakeholders in Vietnam in developing our bond market in the future.
"Investors and issuers in both countries can cooperate, especially with the ASEAN Economic Community, and with standardisation in issuance (of bonds) for this region, both parties can invest in bonds in both countries, and in ASEAN," he added.
Vietnam's current bond market liquidity is skewed towards issuances of below five years, a reflection of the bond market's infancy, according to people familiar with the matter.
Vietnam has a population of nearly 90 million people, three times that of Malaysia, but its bond market size is only one seventh of Malaysia's.
RAM made several visits to Vietnam in 2015 and both VBMA and RAM have concluded that Vietnam is at the tipping point of an exponential growth in the corporate bond market in the next 10 years.
It has the same characteristic as Malaysia during the 1990s when bank loans to big corporates for infrastructure projects had a single customer limit due to the small capital, major infrastructure projects were piling up as they awaited financing, and big corporates seeking new ways of raising needed big funds that banks could not offer.
"Market players in Vietnam are already equipped and have the competency to quickly adopt new skills for the corporate bond market as the government bond market is already active at US$40 plus billion," said a local local industry expert who wished to remain anonymous.
Vietnam's growing appetite for long-term infrastructure funds, and its plan to emulate Malaysia's bond market development, has been well-received in Malaysia, which seeks to export its bond experience and success to potential and emerging markets.
"Malaysian regulators Bank Negara Malaysia and SC's top executives have always encouraged Malaysian financial institutions to export their financial expertise and services to new markets, but its bond market success didn't happen overnight and many players were involved in promoting it.
"Now, an agency like RAM seems responsive to the new reality of limited Malaysian growth, as it looks to export its experience and success to Vietnam and other emerging bond markets," added the industry veteran.
--BERNAMA
Source: http://www.bernama.com/bernama/v8/bu/newsbusiness.php?id=1188284
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