Avoiding "messiness" in the corporate bond market restructuring

>> Banks’ bond buybacks might affect credit growth in H2 2023

The formal launch of the privately placed corporate bond trading system on July 19 is only one of several developments that seem to be igniting the corporate bond market in Vietnam.

The State Bank of Vietnam (SBV) should guarantee bank bond payments like bank deposits, according to a proposal made recently by the Viet Nam Association of Financial Investors (VAFI). The first recommendation made by VAFI in the plan is to create a legislative environment that is essentially risk-free for ordinary investors who participate in the bond market.

Mr. Nguyen Minh Tun, CEO of AFA Capital, regards this plan as problematic because VAFI wants to impose requirements for two categories of bonds, not because of the legislative framework.

First, risk-free bonds: including three types: Government bonds and bonds issued by local governments.

Second, riskier bonds issued by non-bank organizations, bonds issued by banks not covered by SBV, and bonds issued only for organizations rather than for individuals.

Investors should be aware that different products have varying projected returns and dangers when making financial investments. Savings accounts, for instance, have the lowest risk due to their low predicted returns, whereas bonds (debt securities) have higher risks but larger returns.

The question then arises: Should bonds' yields match or differ from savings accounts' returns if they share the same risk? People will surely withdraw their deposits to buy bonds and vice versa, assuming the same amount of risk but better yields for bonds. Because of this, it is crucial to arrange financial goods in a transparent manner on the market. When investing, risk management is crucial for generating substantial returns.

It is currently a point of debate in the market as to whether savings accounts are "almost entirely safe" and whether or not there is a chance of bankruptcy.

The banking system, whose stability is a key objective established by the SBV, plays a significant role in the development of Vietnam's financial market.

The banking system, whose stability is a key objective established by the SBV, plays a significant role in the development of Vietnam's financial market, which is still in its early stages. Therefore, the SBV must offer liquidity and solutions when banks experience issues.

>> Privately-issued bonds: A significant boost for the market

Mr. Tuan believes that VAFI's second proposal, which would exempt individual and corporate investors from business bond-related taxes, is similarly advantageous. If we want to develop the corporate bond market, taxes are a good tool. According to VAFI, a tiny amount of the income tax derived from bond interest might be reduced by the state budget. The state invests one unit but receives 100 times the return on its investment.

In Mr. Tuan's opinion, there are already a lot of issues with corporate bonds and bad loans. In order to avoid creating "messiness" in Vietnam corporate bond market, all restructuring initiatives must be founded on a framework and a strategy.

They use credit rating systems to assess these problems globally and rely on them to evaluate investment returns. We will surely get into issues down the road if we don't adhere to international best practices.