Domestic outstanding loans are equivalent to 104.9 per cent of the GDP, which is 6.5 times higher than the total value of the bond market and triples the capitalization value of the stock market.— Photo dantri

HA NOI (Biz Hub) — Viet Nam's capital market should be developed to handle the mid-long term credit demand of the economy, leaving the management of short credit and financial services to the banking system.

The suggestion put forward by bankers and economists is aimed at taking the pressure off balance sheets and volatile capital structures at banks that use short-term deposits to do mid-long term lending.

Viet Nam's financial market has developed exponentially, yet the development is largely dependent on bank credit, Nguyen Thi Kim Thanh, the head of the central bank's Banking Strategy Institute was quoted as saying by Vietnam Economic Times (Thoi Bao Kinh Te Viet Nam).

Domestic outstanding loans are equivalent to 104.9 per cent of the GDP, which is 6.5 times higher than the total value of the bond market and triples the capitalization value of the stock market. Viet Nam's GDP stood at US$170 billion in 2013 and $141 billion in 2012.

The State Bank of Viet Nam's statistics revealed that mid-long term money constituted 30-35 per cent of the total deposits, but mid-long term credit accounted for more than 40 per cent of the total demand.

BIDV Chairman Tran Bac Ha was cited by the Vietnam Economic Times as saying that banks take liquidity risks by using short-term deposits to facilitate mid-long term loans. This practice lays pressure on the central bank to re-finance or provide additional capital to banks via Open Market Operation (OMO) at more frequent intervals by the year-end period.

While banks' sources fall short of credit demand, the capital market is not adequately developed and in need of urgent assistance.

Government bonds, which constitute 90 per cent of the bond market, including State Treasury bonds and notes, Government-guaranteed bonds, local authority guaranteed bonds, only manage to meet 16 per cent of the credit demand.

Moreover, these tools are almost held as safe reserves by major credit institutions, such as BIDV, Vietcombank, Agribank, and Vietinbank until they mature. Credit that banks injected into government bonds reportedly reached VND65 trillion ($3 billion), up 0.1 per cent by the end of the first quarter this year as compared to the end of 2013.

After bond sales, however, mobilised money often makes a round trip within the state treasury and banks that also bore fees.

Ha suggested that the State and Government should chalk out plans to use capital mobilised from bond sales, such as public investment projects.

Tran Hoang Ngan, a member of the National Advis-ory Council on Monetary and Financial Policies emphasised that it is not just necessary to fix regulations for the stock market, but also pay more attention to revive the government bond market.

Ngan proposed sellers to diversify maturities and to make pre-sale information available to the public in order to help investors to be better prepared. Post-sale policies are also required to boost transactions in the secondary market.

In the meantime, the corporate bond market recorded a good performance last year, and Viet Nam is aiming higher by organising its technical and legal grounds in order to be well-prepared to facilitate issuers. Viet Nam's corporate bond market featured the participation of 20 issuers, but just one-fourth are active in the market.

The Ministry of Finance plans to mobilise up to VND35 trillion ($1.65 billion) from corporate bonds this year, up 1.8 per cent against 2013.

Last year, the volume of corporate bonds sold was VND34.41 trillion ($1.62 billion), up 19.87 per cent against 2012, 37.64 per cent against 2011, and 14.7 per cent against 2010. — VNS