Overcoming challenges in the corporate bond market

Many Challenges ahead

The year 2024 saw a robust comeback in Vietnam's corporate bond (CB) market, with issuance value reaching about half a quadrillion VND, indicating significant development following the tough period of 2022-2023. Despite the optimistic signals, the market nevertheless confronts significant problems in terms of quality and structure.

According to FiinRatings data, the majority of the CB market's growth is driven by issuance volume, particularly in the banking sector, which accounts for more than 67% of total issuance value. Meanwhile, bonds issued by manufacturing and business enterprises account for just more than 30%. This reflects the limited capital mobilization function of the market, particularly for non-bank enterprises.

Liquidity in the secondary market has improved, but the primary bottleneck remains the market's ability to provide long-term capital for businesses. Comprehensive changes are needed to improve issuance quality, enhance transparency, and build investor confidence.

According to Mr. Phung Xuan Minh, Chairman of Saigon Ratings, in 2024, the National Assembly passed several important laws related to the financial market, such as the Law on Credit Institutions, the Housing Law, the Real Estate Business Law, and the Land Law. At the same time, the Government is urgently revising decrees such as Decree 153 and Decree 155 to promote public and private bond issuance.

These changes are likely to improve capital flows, particularly in real estate, transportation infrastructure, and export-oriented companies. Simultaneously, huge projects like the North-South high-speed railway, international seaports, and nuclear power plants are exerting a strain on investment capital requirements.

Therefore, to enhance capital attraction in the CB market, the following challenges must be addressed:

Transparency and Reliable Reporting Systems: Many investors, especially international ones, remain hesitant due to the lack of transparent information and reliable reporting systems. The practice of listing and credit rating is not yet common, leading to information asymmetry.

Green Bond Issuance: Addressing regulatory obstacles related to green bond issuance to meet the demand of the green economy and align with global trends.

International Market Integration: The limited connection with international markets results in a reliance on domestic capital sources.

Role of Credit Rating Agencies: The involvement of credit rating agencies, which is crucial for capital mobilization, has yet to be fully developed.

Expectations for 2025

According to experts, the period 2025-2030 will be crucial for the development of Vietnam's CB market. Key directions include:

Development of Green and Sustainable Bonds: Vietnam should focus on green projects, ranging from renewable energy to sustainable transportation, to attract capital through green bonds. Developed countries have demonstrated the effectiveness of this approach in attracting international investment. Thus, establishing a clear legal framework and incentive policies will help Vietnam keep up with global trends.

Improvement of the Legal Framework: A transparent and reliable bond market requires a robust legal framework. The government should promptly finalize relevant decrees and guiding circulars to ensure transparency in bond issuance and transactions. Enhancing the role of credit rating agencies will also help build investor confidence.

International Cooperation: Expanding collaboration with international financial and investment organizations is essential. This will not only facilitate more effective capital mobilization but also bring valuable market management experience from developed countries.

Digital Transformation in Market Management: The application of digital technology in bond market management will enhance transparency, reduce risks, and optimize issuance processes. Online platforms can be utilized to connect investors with businesses and provide timely and comprehensive information.

Training and Capacity Building: To ensure market efficiency, specialized training programs on bonds for businesses, investors, and regulatory agencies are needed. This will raise awareness about responsibilities, benefits, and sustainable participation in the market.

It is clear that Vietnam's CB market plays a crucial role in economic stability and growth. To achieve this, a combination of legal reforms, enhanced regulatory oversight, and a shift in the mindset of market participants is required. Only by building a transparent, safe, and efficient ecosystem can the CB market truly become a driving force for Vietnam's sustainable economic development.