THEORETICAL OVERVIEW
Interest rate
The interest rate is the rate by which interest is paid by a borrower for the use of money they borrow from a lender
Specifically, the interest rate (I/m) is the percentage of principal (P) payable for a certain amount of time (m) per period (usually calculated on an annual basis)
Interest rate targets play a crucial role in monetary policy, influencing key economic variables like investment, inflation, and unemployment Central banks typically lower interest rates to stimulate investment and consumption within the economy However, maintaining low interest rates can pose risks, potentially leading to the formation of economic bubbles characterized by excessive investment in real estate and stock markets.
Interest rates can be classified into six fundamental categories based on the type of loan: deposit interest rate, credit interest rate, discount rate, rediscount rate, interbank interest rate, and basic interest rate.
Interest rates are primarily affected by the supply and demand for capital in the market; they tend to decrease when capital supply exceeds demand and increase when demand surpasses supply.
Interest rates are influenced by inflation, increasing when inflation is high and decreasing when it is low Additionally, economic stability plays a crucial role, with interest rates rising during periods of economic instability and falling when the economy is stable.
State policies influence interest rates, which rise when taxes increase or public expenditure is inflated, and fall when taxes are lowered or public spending is increased Additionally, macroeconomic factors such as significant fluctuations in global financial markets, international investment flows, and financial crises can lead to higher interest rates, while their absence typically results in lower rates.
1.1.3 The role of interest rates in Vietnam's economy
Interest rates play a crucial role in the economy as they are essential for managing monetary policy They directly affect the costs and returns of investments, shaping the investment choices of both businesses and individuals Moreover, interest rates help maintain a balance between supply and demand for currency, ensuring economic stability and adherence to inflation targets, while also supporting production, business activities, and overall economic growth.
As interest rates increase, borrowing costs also rise, creating challenges for businesses and individuals seeking capital This situation can restrict consumption and investment, potentially resulting in an economic downturn In contrast, when interest rates decrease, borrowing costs decline, making capital more accessible.
5 making iteasier for businesses and individuals to access capital and promoting investment and economic growth
Therefore, governments often use interest rates as a tool to manage monetary policy to achieve economic goals such as economic growth, controlling inflation and maintaining economic stability.
Capital market
Capital markets, a segment of financial markets, facilitate the trading of medium and long-term debt instruments and securities, typically with maturities exceeding one year These include various capital market securities such as stocks, government bonds, corporate bonds, local government bonds, and mortgage loan agreements Compared to short-term securities, capital market securities are generally less liquid and carry higher risks due to significant price fluctuations.
Capital markets primarily involve securities such as stocks, bonds, investment funds, and derivatives like options and futures Investors can trade these securities via stock exchanges or online platforms Additionally, capital markets utilize financial instruments, including market indices and futures contracts, alongside services like investment advisory and asset management These tools are essential for both investors and companies in making informed investment decisions and effectively managing risk.
Capital markets encompass three primary segments: the leasing market, mortgage market, and securities market The medium and long-term stock market facilitates the trading of instruments with maturities exceeding one year, offering long-term credit to businesses secured by mortgages Additionally, the lease-and-buy credit market provides medium and long-term financing to enterprises through asset leasing Commonly, the term "capital market" is synonymous with the stock market, which specifically refers to the platform where securities are issued and traded.
Securities serve as proof of ownership, validating the holder's rights and interests in the issuer's assets or capital These financial instruments can take various forms, including certificates, book entries, or electronic data, and encompass a range of types such as stocks, bonds, investment fund certificates, rights, warrants, options, and futures.
1.2.2 Factors affecting the capital market
The capital market in Vietnam is affected by many factors, including:
Macroeconomic factors, such as GDP growth, inflation, budget deficit, public debt, balance of payments surplus, and exchange rates, significantly influence the demand and supply of capital These indicators impact the present value of financial instruments and determine the cost and efficiency of investment projects.
State policy factors, such as monetary, tax, and legal policies, significantly influence interest rates and the capacity of both the Government and businesses to secure capital Additionally, these policies play a crucial role in determining the transparency and safety of the capital market.
International market factors encompass elements such as global economic conditions, international investment flows, and financial crises, all of which significantly influence foreign currency supply and demand, exchange rates, and associated international risks.
1.2.3 The role of capital market in Vietnam's economy
Capital markets play a crucial role in resource allocation and economic growth by providing essential capital for businesses to invest in productive projects, which in turn enhances labor productivity and national income Additionally, they enable investors to select investment options that align with their goals and preferences, maximizing their returns This article specifically examines the significant impact of capital markets on Vietnam's economy.
Capital markets are crucial for mobilizing savings and offering long-term investment capital to businesses, organizations, and the government They enhance the effective utilization of financial resources for socio-economic development and create new investment opportunities that align with individual goals and preferences, optimizing potential benefits Additionally, capital markets play a significant role in improving financial awareness and skills among the public.
Contribute to the research and development ofscience and technology, thereby increasing output and productivity in the economy Capital markets also help create jobs and develop infrastructure
During the Covid-19 pandemic, the capital market has been crucial in sustaining the production and business operations of enterprises, helping to mitigate risks and challenges posed by the crisis Additionally, it serves as a vital channel for the Government to raise funds for socio-economic support packages aimed at assisting those impacted by the pandemic.
Impact of interest rates on Vietnam's capital market
Interest rates affect Vietnam's capital market in many different ways:
High interest rates typically lead to increased savings as individuals seek to benefit from greater returns, resulting in decreased consumer demand and lower investment levels In contrast, low interest rates encourage higher consumption and investment, as people take advantage of favorable business opportunities, thereby increasing the demand for capital Consequently, high interest rates restrict the supply of capital while simultaneously elevating its demand, whereas low interest rates enhance the supply of capital and diminish its demand in the market.
The present value of financial instruments is determined by discounting future cash flows to their current worth using a suitable discount rate, which is influenced by the prevailing market interest rates High interest rates lead to elevated discount rates, consequently diminishing the present value of these instruments In contrast, lower interest rates result in reduced discount rates, thereby enhancing the present value of financial instruments.
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Bài tập KTĐT có lời giải
7 reduce the price of financial instruments such as stocks, bonds in the market, whilelow interest rates will increase their price;
The cost and efficiency of investment projects are significantly influenced by interest rates The total cost of an investment encompasses both the initial outlay and the cost of borrowing capital The project's effectiveness is measured by its internal rate of return (IRR), which compares the profit generated to the initial investment High interest rates elevate borrowing costs, leading to increased overall expenses and diminished project efficiency In contrast, low interest rates lower borrowing costs, thereby reducing expenses and enhancing the project's effectiveness.
THE CURRENT SITUATION OF INTEREST RATES ON VIETNAM'S
Current situation of Vietnam's stock market during Covid - 19 pandemic
Raising capital costs can lead to a heightened demand for loans, investments, and consumer spending, which in turn boosts the demand for products and services This increase enhances asset values in the market, triggering a flow of money that ultimately drives stock prices higher.
According to the General Statistics Office, in 2020, the total capital mobilization for the economy of the stock market reached VND 383.6 trillion, up 20% over theprevious year; The
8 average trading value on the stock market reached VND 7,056 billion/session, up 51.5% compared to the average in 2019 despite being in the period of serious epidemic impact
By the end of 2021, the stock market experienced significant growth, with market capitalization soaring to VND 7,729 trillion, marking a 46% increase from 2020 and representing 122.8% of that year's GDP Additionally, the total listed and registered trading scale reached VND 1,727 trillion, reflecting a 14.1% rise compared to the previous year, with 761 shares and fund certificates listed on two stock exchanges and 890 shares registered for trading on UPCoM.
In 2021, stock market liquidity experienced significant growth, driven primarily by domestic investors The average trading value surged from VND 19,000 billion per session in January to an impressive VND 40,000 billion per session by November, reflecting a consistent upward trend throughout the year.
On November 19, 2021, the stock market achieved a record trading session with a total value of VND 56,105 billion Since the start of the year, the average transaction value has increased significantly to over VND 26,564 billion per session, marking a remarkable 258% rise compared to the average in 2020 Additionally, total capital mobilization in the stock market for the first 11 months of 2021 reached VND 444,941 billion, reflecting a 23% growth compared to the same period last year.
Figure 2.1 Stock market liquidity in 2021
(Source: VDSC Securities) 2.1.1 Reaction of the delegation
The COVID-19 pandemic in 2020 profoundly impacted the production and business activities of listed and registered enterprises, leading to a significant decline in after-tax profits In the first quarter of 2020, the escalating crisis caused stock markets globally, including Vietnam, to plummet, eroding investor confidence By March 23, 2020, the market capitalization fell to VND 3,302 trillion, representing a 24.7% decrease from the end of 2019.
Falling interest rates lead to reduced borrowing costs for businesses, boosting profits and indirectly raising stock prices However, during the pandemic, many companies struggled to repay loans despite the declining rates In August 2020, the ongoing drop in interest rates presented an opportunity for businesses to lower financial expenses As a result, 84% of listed companies reported positive earnings in the third quarter of 2020, signaling a recovery in the stock market.
By 2021, capital mobilization in the capital market surpassed VND 1.12 million billion, accounting for 38.7% of the total investment capital in the country Notably, the corporate sector's capital mobilization through stock issuance and equitization auctions reached over VND 143.5 trillion, doubling the amount from 2020.
Figure 2.2 The 2021 issuance value is at a record high within the past 5 years
The Covid-19 pandemic has significantly disrupted business activities and social life in Vietnam, forcing many individuals to stay home due to lockdowns and distancing measures While this situation presents challenges, it also offers the opportunity for people to explore new income sources, with stock investments emerging as a particularly appealing option As Vietnam adjusts its operating interest rates to bolster the economy, traditional safe investment channels like savings accounts have become less attractive due to low returns Consequently, the stock market has gained popularity, resulting in a surge of new accounts being opened as more individuals seek to capitalize on investment opportunities.
In 2020, Vietnam saw a remarkable surge in newly opened domestic investor accounts, reaching nearly 394,000, which marks a 109% increase from 2019 Additionally, foreign investors opened 2,856 new accounts, bringing the total number of securities accounts in the country to over 2.77 million—a 16.7% rise compared to the end of the previous year The State Securities Commission highlights that the stock market is evolving into a robust capital mobilization channel for Vietnam's economy, becoming more stable and structurally sound, while state-owned enterprises are increasingly equitizing to attract greater investment from external investors.
Figure 2.3 Number of new accounts opened in the period 2019 - 2020 (quarterly)
In 2021 and early 2022, the stock market experienced significant growth in investor participation, with securities accounts surpassing 4.3 million by the end of 2021 Additionally, foreign investment surged, with the total portfolio value of foreign investors reaching 54.9 billion USD, marking an increase of over 21% compared to the end of 2020.
Figure 2.4 Number of individual investor accounts in the country from 2016 to 2021
In a favorable market characterized by low interest rates, investors often struggle to find bargains in the stock market, as lower rates make equities more appealing and drive prices to elevated levels Conversely, rising interest rates can lead to market declines, creating opportunities for investors to discover undervalued stocks This year, many stocks have recorded historically high price-to-earnings (P/E) ratios, highlighting the challenges of identifying attractive investments in a low-rate environment.
In the short term, interest rates can overwhelm some investors and sell off stocks But it is their sell-off that makes many undervalued stocks exposed
Figure 2.5 Price-to-earnings (P/E) ratio over years
Current situation of Vietnam's bond market in the Covid-19 period
A decline in interest rates positively impacts the bond market, benefiting issuers by reducing capital raising costs for the government This is particularly advantageous for bonds with longer maturities, as it aids in effectively balancing the state budget.
Since early 2020, the government has significantly increased its capital demand to assist individuals and businesses impacted by the COVID-19 pandemic This has been achieved through policies aimed at tax relief, enhanced social security spending, and funding for epidemic prevention Notably, the government bond market has emerged as a vital channel for mobilizing capital to support the central budget.
In 2020, the State Treasury announced a bidding process for Government bonds totaling VND 334 trillion, reflecting a 35% increase from 2019 The winning rate for these bonds was 75.7%, which is a decline from the previous year's rate of 80.3% Notably, the bonds with the highest winning rates were those with maturities of 10 years and 15 years.
Figure 2.6 Value and winning rate of government bonds in 2017 - 2020
(Source: Vietnam Bond Market Association)
In 2020, the State Treasury issued government bonds totaling 333,042.5 billion VND, marking a 35% increase from 2019 The majority of these bonds, approximately 258 trillion VND or 79.7%, were in 10- and 15-year tenors.
Table 2.1 Volume of government bonds issued by tenor in 2020
(Source: Vietnam Bond Market Association)
In 2023, bid winning interest rates for government bonds decreased across all tenors compared to early 2020, with average rates for 10-15 year tenors dropping by 43 and 33 basis points, respectively Rates for other tenors saw reductions between 40 to 60 basis points This decline is beneficial for the Government, as it lowers borrowing costs and alleviates pressure on the budget and public debt Notably, in the first quarter of 2023, the Government issued 93,957 billion VND in bonds at an average interest rate of 3.6% per year, which is 0.9% lower than the same period last year.
The decline in government bond issuance interest rates enhances the government's capacity to raise capital for public investment initiatives, playing a crucial role in stimulating economic growth Public investment is recognized as a vital catalyst for economic recovery in the aftermath of the Covid-19 pandemic.
Figure 2.7 Movement of average winning interest rates in 2020
(Source: Vietnam Bond Market Association)
In 2021, the State Treasury conducted 50 bidding sessions for Government bonds, achieving a total bidding value of VND 431 trillion, with a successful bid value of VND 318.213 trillion, resulting in a bidding success rate of 74% This marks a 1.8% decline in total winning value compared to the previous year, 2020.
Chart 2.8 Winning rate of government bonds through the quarters of 2019-2021
(Source: Vietnam Bond Market Association)
The share of issuance of tenors has not changed much compared to 2020 10-year and 15- year tenors still accounted for the most, reaching 42% and 33%, respectively
Figure 2.9 Proportion of the volume of government bonds issued in 2020 - 2021
(Source: Vietnam Bond Market Association)
Interest rates have decreased across all tenors, with reductions ranging from 35 to 68 basis points compared to 2020 Notably, the sharpest declines were observed in the 5-year, 10-year, and 15-year tenors.
Figure 2.10 Average issuance interest rate for tenors in the period 2019 - 2021
(Source: Vietnam Bond Market Association)
The average interest rate on government bonds has steadily declined, reducing capital mobilization costs for the state budget and enhancing macroeconomic stability while controlling inflation This trend effectively fulfills financial and budgetary needs during the pandemic and aids in restructuring the government bond debt portfolio by extending maturities and lowering issuance rates, thereby creating more flexibility for future periods.
In a landscape of slow bank credit growth, the corporate bond market has emerged as a vital channel for capital mobilization, particularly as lower interest rates decrease financing costs for businesses This environment encourages firms to seek funding for operations and navigate challenging periods However, extremely low interest rates can negatively impact capital markets by diminishing the appeal of bank savings, prompting investors to pursue riskier assets like real estate and stocks Additionally, these low rates blur the lines between efficient and inefficient businesses, allowing weaker companies to persist and hinder market progress Furthermore, excessively low interest rates introduce risks to the corporate bond market, as the shift in cash flow towards higher-risk investments can create instability.
16 brings risks such as increasing bad debt ratio, reducing the quality of collaterals, lack of information transparency and supervision
The bond market has demonstrated remarkable growth over the past five periods, achieving an average compound growth rate of around 55.4% per year In 2021, the total domestic issuance volume reached VND 658,009 billion, reflecting a 42% increase compared to 2020 Notably, the public offering rate decreased to 4.58%, significantly lower than the 7.10% recorded in 2020, indicating a shift in market dynamics.
In 2020, the corporate bond market experienced a positive shift from private to public issuance, increasing from 5.86% in 2019 to 7.1% However, this growth was short-lived, as issuance rates plummeted by nearly 40% in 2021.
Figure 2.11 Share of private placement and public offering, 2015-2021
(Source: Vietnam Bond Market Association)
Medium and long-term capital demand is concentrated in key industry sectors such as Real Estate, Construction, Electricity, and Building Materials, remaining robust despite tightening lending standards The corporate bond market is increasingly vital for mobilizing this capital, offering significant advantages over traditional bank deposits due to lower interest rates and restricted credit availability In 2021, the value of corporate bonds issued in Vietnam surpassed the capital raised from the stock market and closely approached the volume of new medium and long-term loans from commercial banks, highlighting the growing importance of bonds in financing enterprise and economic development.
Figure 2.12 The volume of capital raised from different channels
In Q4 2021, commercial banks dominated the bond issuance landscape, accounting for nearly 40% of the total volume, primarily to enhance year-end credit growth and meet capital regulations Real estate corporate bonds followed closely, making up 35% of the total issuance as the sector experienced significant growth throughout the year In contrast, the consumer goods, services, and energy sectors saw a decline in bond issuance compared to 2020.
Figure 2.13 Proportion of government bond issuance volume in 2020 and 2021
(Source: Vietnam Bond Market Association)
In addition, in 2021, there were 243 enterprises issuingfor the first time with an issuance volume of 40%
Table 2.2 Number of enterprises issuing bonds for the first time in 2020 and 2021
In 2023, over 60% of new issuers in the market are real estate and construction companies, marking a significant increase since 2020, while other industry groups have seen declines Notable first-time issuers include the residential real estate sector, with Masterise Group raising approximately VND 15,500 billion for the Saigon Binh An Urban Area project, alongside medical firms like Sun Valley, Bach Hung Vuong, and Wealth Power, which collectively secured around VND 9,420 billion Additionally, Van Truong Phat Construction Investment Company invested about VND 6,000 billion in the Viet Phat Urban Area.
Current situation of Vietnam's derivatives market in the Covid-19 period
Falling interest rates positively impact the derivatives market by reducing borrowing costs for investors, encouraging leverage and increased trading activity This decline in rates enhances the purchasing power of individuals and businesses, stimulating consumption and production, which supports the underlying stock market However, while lower interest rates play a role, they are not the sole determinant of the derivatives market's success; factors such as liquidity, transparency, risk management, and the availability of diverse products and services are also crucial for attracting investors and ensuring sustainable development.
The derivatives market set a performance record onJuly 29, 2020 with a peak trading volume of 356,033 contracts and a peak open contract volume of 52,767 contracts on November
10 Accordingly, VN30 futures contract in 2020 has an average trading volume of more than
163 000 contracts/session, up 84.27% compared to the average in 2019
In 2020, the average trading volume surged to 156,852 contracts per session, marking a 77% increase since the end of 2019 By December 31, 2020, the total open interest (OI) in the market reached 40,339 contracts, reflecting a substantial 143% growth compared to the end of 2019.
Figure 2.20 Number of new derivatives accounts
The number of derivatives accounts has reached 161,992 In particular, the number of new openings in 2020 is more than 70,000 accounts and is the highest level within 4 years of operation
While interest rates play a significant role in the derivatives market, factors like liquidity, transparency, effective risk management, and the variety of products and services offered are equally crucial for attracting investors and ensuring sustainable development.
FORECASTED FUTURE AND RECOMMENDED SOLUTIONS
Practical lessons
Lesson 1: For enterprises issuing bonds, bond issuance must be associated with cash flow and feasibility of production and business plans, financial capacity of enterprises Lesson 2: For investors who buy bonds, do not buy bonds through the offer of service providers without thoroughly understanding the financial situation of the business Lesson 3: The State Bank of Vietnam lowering interest rates on compulsory reserve deposits will have the effect of reducing other types of interest rates
Lesson 4: Lowering operating interest rates reduces deposit rates that easily affect business customers, who will withdraw bank deposits for short-term investment and business The Covid-19 epidemic has had a great impact on the stock market, indices fell sharply from the peak and fell nearly 30% compared to the beginning of the year (2020’s data), creating a more attractive valuation buffer After the bottoming phase, the economy begins a period of recoveryand growth, the stock market will benefit first.
Future forecast
3.2.1 Trends in interest rates, exchange rates and inflation
The global economy is experiencing a slow recovery amidst the persistent risk of recession, exacerbated by the ongoing conflict between Russia and Ukraine Additionally, several major banks, including Credit Suisse, Silvergate Bank, Signature Bank, and Silicon Valley Bank, have collapsed due to liquidity issues In response, the US Federal Reserve has implemented measures such as tightening credit and raising interest rates, reflecting the commitment of major central banks to prioritize inflation stabilization.
The recent decision by the Federal Reserve to raise interest rates is expected to impact our country's economy, potentially prompting the State Bank to increase its operating rate to stabilize the exchange rate, while also managing foreign exchange reserves for long-term intervention During a seminar focused on collaboration and risk-sharing across industries, SBV Deputy Permanent Governor Dao Minh Tu emphasized the abundant liquidity within commercial banks and the significant lending capacity of the banking system He urged commercial banks and the business community to actively collaborate to address challenges, while reiterating the SBV's commitment to reducing interest rates to support individuals and businesses The State Bank is encouraging commercial banks to lower lending rates in the near future.
Commercial banks are expected to lower interest rates based on their financial capacity, following the State Bank's recent proposals to stabilize deposit and lending rates While the rise in these rates has slowed, they continue to maintain positive real levels The demand for investment in this channel is anticipated to remain steady; however, with a challenging economic climate, the savings-to-income ratio may decrease, leading to a less significant increase in time deposits compared to previous periods As the economy begins to recover, a stronger growth in deposits is likely.
In 2023, the Vietnam Interbank Market Research Association (VIRA) anticipates stability in money market indicators, reflecting a new equilibrium Interest rates and the yield on 10-year government bonds are expected to gradually stabilize, with a forecasted yield of approximately 4.58%, down from the current average of 4.7% The USD/VND exchange rate, after unprecedented fluctuations in 2022, is predicted to stabilize by year-end, with more conservative forecasts for 2023 The average exchange rate is projected at 23,709.5 VND per USD, aligning closely with current levels, as the Federal Reserve's interest rate changes are expected to have a less dramatic impact on the market.
In 2023, inflation is projected to rise notably compared to the previous year, nearing the control target established by the National Assembly and the Government The consumer price index (CPI) is expected to reach approximately 4.13%, indicating confidence in maintaining inflation within the target limit of 4.5%.
3.2.2 Prediction of general capital market trends
In recent years, the stock market and corporate bond market have experienced significant growth, expanding in breadth, depth, scale, product variety, and liquidity This expansion has facilitated the mobilization of financial resources, providing crucial support and complementing traditional capital supply channels, such as bank credit However, in 2022, the capital market faced a period of simmering challenges.
"underground waves" and a series of wrongdoings discovered during the year exposed legal loopholes and many types of variations of these capital raising channels
The recent violations in the corporate bond market have created psychological turmoil among participants, yet they have also enhanced understanding of market dynamics New regulations now mandate that issuers and intermediaries disclose detailed information regarding their financial health and corporate bond offerings In a climate of stranded liquidity, companies with weak credit quality are likely to face cash flow erosion and challenges in securing debt refinancing Conversely, firms with robust cash flows and the ability to attract international capital are expected to navigate this period successfully.
Recent analysis indicates that 26 additional insolvent issuers, particularly those with a history of increasing leverage over the past three years and struggling cash flows, are at risk Nevertheless, there is optimism that the proposed amendment to Decree 65, which would permit debt extensions, could alleviate maturity pressures for these businesses.
The upcoming corporate bond market is set to enter a new cycle characterized by significant changes aimed at fostering sustainable development While challenges persist, this environment provides an opportunity to assess the financial health of market participants, enabling regulators to identify and monitor weaker enterprises effectively Conversely, issuers with robust financial capabilities and sound business models can leverage this situation to expand their market share in the forthcoming business period.
In the Vietnam Stock Market Outlook for 2023, analysts from SSI Securities Corporation highlight that the market has already priced in several risks, including rising interest rates and subdued growth prospects A positive aspect for this year is the expected stability of the VND However, liquidity risks will continue due to significant corporate bond maturities, and while interest rates may peak, any recovery will be gradual, leading to ongoing challenges in the real estate sector SSI projects a 15% increase in the VN-Index by year-end, targeting 1,160 points, supported by the government's proactive measures to address macroeconomic challenges and growth driven by public investment, China's reopening, and foreign capital inflows Nonetheless, it remains premature to be overly optimistic about a strong market breakout.
Solution recommendations
In 2020, Vietnam experienced a favorable economic environment characterized by low interest rates and stable exchange rates, which facilitated a swift recovery from the Covid-19 pandemic The State Bank of Vietnam adjusted operating interest rates to support this recovery, while the insurance sector demonstrated resilience amid ongoing challenges Additionally, capital raising in the capital markets surged by approximately 20% compared to the previous year, reflecting a positive trend in economic growth.
3.3.1 It is necessary to accelerate the implementation of the roadmap of Basel II standards From the fact that over the past time, a series of banks in the world have lost and SCB of Vietnam has lost liquidity, along with the corporate bond market, securities fell into a frozen state and liquidity stress "knocked" on banks' doors, causing many businesses to face difficulties in capital sources, Negatively affecting the capital market in general and adversely affecting the quality of the bank's interest-bearing assets, corporate bonds held by banks are also likely
The future safety of the banking sector is crucial for maintaining the stability of capital markets and the overall economy, as it significantly impacts the risk of bad debts.
To enhance financial capacity and support business expansion, commercial banks must adhere to the capital adequacy ratio standards set by the Basel II Treaty, as outlined in Circular 41/2016/TT-State Bank.
Many banks have primarily focused on meeting the minimum capital adequacy requirements, neglecting the implementation of comprehensive internal assessments due to the complexity and significant financial and human resource investments involved.
In Vietnam, credit institutions must adhere to operating safety ratios outlined in Circular No 22/2019/TT-State Bank, which includes maintaining a liquidity reserve ratio and affordability ratio for 30 days at 10% To effectively reduce the compulsory reserve ratio, it is essential to develop a plan informed by lessons from 2009, establish clear micro and macro benchmarks, and set a deadline to ensure equal treatment for both large and small enterprises, without distinguishing between professions.
3.3.2 Organizing market regulation in association with completing the legal framework For the stock market: Focus on improving the quality of goods, promoting equitization and divestment of state-owned enterprises associated with listing on the stock market; strengthen the compliance ofbusinesses in the market In the short term, focus on implementing solutions and policies to support businesses and stock markets to overcome difficulties caused by the COVID-19 epidemic such as cutting administrative procedures, adjusting service discounts, fees and charges in the securities sector
To enhance the Government bond market, it is essential to establish it as a benchmark within the financial sector, facilitating effective capital mobilization for the State budget while supporting the safe and sustainable restructuring of public debt This development will ensure resource availability for socio-economic development plans and the economic recovery process Concurrently, the corporate bond market should be developed sustainably to serve as a vital capital mobilization channel for enterprises, emphasizing the creation of a transparent secondary market and the establishment of clear standards that differentiate between publicly issued bonds and those placed privately.
3.3.3 Actively implement the restructuring of the stock market, improve the competitiveness and quality of market intermediary institutions
For market intermediaries including securities companies,auditing organizations, valuation organizations, fund management companies, credit rating agencies, etc., focusing on improving professional ethics and service quality of service providers
Each service-providing organization will be reviewed and classified, with licenses revoked in cases of violations Organizations offering stock market services are encouraged to implement fintech applications that align with investor needs and market growth Additionally, the development of credit rating services will be prioritized, promoting service provision and enhancing the capabilities of these organizations.
To address the growing complexity of market violations, it is essential to enhance inspection and supervision in the stock and corporate bond markets This will help ensure market development while effectively identifying and addressing manipulative practices, such as disseminating false information and utilizing multiple abnormal trading accounts Strict sanctions must be imposed on manipulative behaviors, while businesses that adhere to regulations should receive support for sustainable and effective growth.
In response to the Covid-19 pandemic, the State Bank of Vietnam reduced interest rates to alleviate financial pressure on businesses and individuals, significantly impacting the capital market The lower interest rates have made investments in liquid stocks and bonds more appealing, contributing to the growth of Vietnam's stock market However, these low rates also pose risks, including adverse effects on banks and the broader economy Looking ahead, interest rates are expected to remain low for an extended period, prompting investors to carefully evaluate the associated risks and rewards of investing in the capital market.