Solutions to develop government bond market in Vietnam

Ministry of Finance needs to keep track of and evaluate the operations of market participants to select the high quality system of first-level agents as the market makers with specific rights and duties. Issuance in large quantities should be applied by all issuers. Vietnam Bond Market Association (VBMA) should coordinate to pilot the trading of some derivatives by voluntary market makers. Tools for improving liquidity could be utilized including repurchase, convert and combination with other terms and other issuers, etc. The State Securities Commission should reinforce the operations of bond market control bodies, provide transparent information and coordinate with HNX to develop the information system for government bond market. Hanoi Stock Exchange ought to amend regulations related to trading to match the actual market development. New products should be launched with upgraded system and increased utilities for participants. International integration needs to get deeper based on the existing connection with international communication agencies, international forums, regional and international bond markets to attract foreign investment flows.

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Vu Thanh Tu ANH - Fulbright University in Vietnam, USA Le Xuan BA - Centural Institude for Economic Managerment, Vietnam Hervé B. BOISMERY - University of La Reuinion, France H. Eric BOUTIN - Toulon Var University, France Nguyen Thi DOAN - Vietnam Learning Promotion Association, Vietnam Haasis HANS - Dietrich - Institute of Shipping Economics and Logistics (isl) Bremen - Germany Le Quoc HOI - National Economic University, Vietnam Nguyen Thi Bich LOAN - Thuong mai University, Vietnam Nguyen Hoang LONG - Thuong mai University, Vietnam Nguyen MAI - Vietnam Economist Association, Vietnam Duong Thi Binh MINH - University of Economics HoChiMinh City, Vietnam Hee Cheon MOON - Korean Trade Research Association, South Korea Bui Xuan NHAN - Thuong mai University, Vietnam Luong Xuan QUY - Vietnam Economicst Association, Vietnam Nguyen Van Song - Vietnam National University of Agriculture Nguyen TAM - California State University, USA Truong Ba THANH - University of Danang, Vietnam Dinh Van THANH - Institude for Trade Research, Vietnam Do Minh THANH - Thuong mai University, Vietnam Le Dinh THANG - University of Québec à Trois Riviéres, Canada Tran Dinh THIEN - Vietnam Institute of Economics, Vietnam Nguyen Quang THUAN - Vietnam Academy of Social Sciences, Vietnam Le Nhu TUYEN - Grenoble École de Managment, France Washio TOMOHARU - Kwansei Gakuin University, Japan Zhang YUJIE - Tsinghua University, China THE Members Editor in chief NGUYEN BACH KHOA Deputy Editor in Chief SECTRETARY OF EDITORIAL OFFICE PHAM MINH DAT Editor in English NGUYEN THI LAN PHUONG Editorial SCIENTIFIC COUNCIL Dinh Van SON - Thuong mai University, Vietnam - President Pham Vu LUAN - Thuong mai University, Vietnam - Vice President Nguyen Bach KHOA - Thuong mai University, Vietnam - Deputy President Journal of Trade Science Volume 5 Number 1 April 2017 C O N T E N T S 1. Nguyen Thi Phuong LIEN - Solutions to Develop Government Bond Market in Vietnam 2. Nguyen Tran HUNG - Attract Online Customers to Job Websites in Vietnam 3. Nguyen Thi Kim OANH - Research Factors Affecting Hanoi Consumers Buying Decisions of Fashion Products 4. Chu Viet CUONG - Trade development in the mountainous region of northern Vietnam: Lessons from Chongqing and Yunnan, China 5. Dang Thi Minh NGUYET - Factors Affecting Productive Efficiency of Vietnam Joint Stock Commercial Bank for Industry and Trade 6. Ying-Kai LIAO and Vu Minh QUAN and Alfiyatul Qomariyah - An Integrative Approach to Investigate Antecedents, Moderators and Consequences of Brand Equity Page 3 13 24 33 41 53 1. Development situation of government bond market in Vietnam in the period of 2010-2015 Government bond market is an important compo- nent of the bond market and was officially opened on 24 September 2009 at Hanoi Stock Exchange (HNX). The products traded on the government bond market include different types of government bonds, local government bonds, government-secured bonds. Government bonds are traded by put through trading method with two tools including ordinary trading (out- rights) and repurchase agreement (repos). The govern- ment bond market consists of primary and secondary markets. * Primary market: Primary market is the place of offering bonds for the first time. HNX operates and arranges for the elec- tronic bidding system. During 2010-2015, government bond market organized 1,375 bidding sessions for bonds issued by State Treasury, Bank for Development, Bank for Social Policies, etc. In this period, the primary market gained the average growth rate of 67.5%. The development in scale, quantity and quality of the issuance, especially State Treasury bonds in standard bond codes has con- tributed to the increased liquidity in the secondary market. In bond terms: The terms of bonds increased, lead- ing to the average term of listed bond portfolio increas- ing from 2.37 years (2010) to 3.77 years (2015). In 2015, the average term of bonds issued by organiza- tions was 5.7 years, in which Treasury bonds had the average term of 6.1 years. With 20 - year and 30 - year retailing bonds, the average term of treasury bonds was 6.97 years. Regarding issuance methods: The rate of govern- ment bonds issued by bidding through HNX rose from 49% in 2009 to 100% in 2014. Since 2014, all govern- ment bonds have been issued by electronic bidding. It 3 journal of Trade Science 5:1 (2017) 3 - 12 JOURNAL OF TRADE SCIENCE ’S JTS Nguyen Thi Phuong Lien Thuongmai University Email: Received: 15th February 2016 Revised: 10th March 2016 Approved: 13th March 2017 Keywords: Government bond, Bond market, Growth he government bond market plays an important role in the socio-economic development cause of every nation. In recent years, despite certain achievements it has gained, Vietnam's government bond market has still remained many limitations. Upon researching the situation of market development in the 2010 - 2015 peri- od from primary data, the article points out some limitations of the market in terms of product ranges, transac- tion modes, investors and identifies the main reasons for its development limitations such as market information system, infrastructure, legal environment, etc. On this basis, the author suggests orientations and solutions to help it develop safely and effectively in the coming time. proved the information transparency and disclosure through HNX. Regarding investors: In the primary market, com- mercial banks have been the main investors with near- ly 90% market share. In 2015, the structure saw some changes with the participation of insurance companies with the purchasing power of 10.2%, relatively higher than 7.8% in 2014 (regardless of 20-year and 30-year retailing bonds to insurance companies). Besides, the market participation tended to focus on some leading 4 Journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS Unit: billion VND Source: Hanoi Stock Exchange Chart 1: Bond mobilization through years Source: Hanoi Stock Exchange Chart 2: Terms of bond issuance and listing (2013-2015) banks. Top 10 banks accounted for 60% - 70% market share in both primary and secondary markets Regarding bidders: Domestic commercial banks have been the main bidders over the years with the winning rate of 77% - 83% of the total market value; followed by foreign banks with 11% - 12%. Regarding market infrastructure: In June 2012, HNX officially put electronic bidding system into use. It directly connects the exchange to market participants and management bodies. It links primary and second- ary markets and shortens time from issuance to listing, transaction as well as provides timely information for the management of the authorities. * Secondary market Secondary market organizes transactions for gov- ernment bonds after the first issuance. HNX is the mar- ket organizer and operator with transaction services and system to secondary participants and investors. Commercial banks and securities companies are two major market participants. Situation of listing: By 31 December 2015, there were 537 codes with the listed value of nearly VND 753,451 billion. Treasury bonds remained the highest rate in the market (over 80% listed value in 2015) Situation of transaction: - Transaction size: The size of transaction in the market saw sharp increase over the years. By 31 December 2015, total trading value of the market reached approximately VND 906,387 trillion including VND 606.39 trillion of Outright transactions (67% of total value) and VND 299.99 trillion of Repos transac- tions (33% of total value). The average trading value of each session was VND 3,655 billion. With the increase in size, the rate of repos transaction was also on the rise. Repos transactions in the system rose from 1.8% of total market value in 2011 to 33% in 2015 (with the decrease in outrights). The most frequent repos term 5 journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS Unit: bond Source: Hanoi Stock Exchange Chart 3: Listed government bonds by issuers was one-month repos, accounting for 30% of the repos transactions. The following frequent terms were 2 months and 3 months with around 18%. In general, long terms (over 14 days) were still frequent with 91.5% of repos transaction value. - Investors: Two groups of investors in Vietnam's government bond market include domestic and foreign investors. After the regional financial crisis in 2009, foreign investors massively withdrew capital from the bond market in Vietnam. Since 2011, they have come back with steady transaction of 30% of total bond mar- ket. The transaction rate of foreign investors in 2015 was 10.7% of the total market value, lower than 15% in 2014. They mainly participated in outrights transac- tions with repos transactions of less than 1% the total repos transactions.(Chart 5) - Traded bond terms: Government bond traded focused on terms of 1 to 5 years with 82% of the total value. Terms of under 1 year and over 5 years only accounted for 18%. Among them, 5 - year term and 2 - year bond had the highest liquidity with turnover rate of 1.51 and 1.39 times, respectively. The general turnover rate of the total bond portfolio in 2015 was 0.84 times. The term structure in secondary market was similar to the primary market.(Chart 6) - Participants: The participation of member com- mercial banks increased dramatically from 38.6% of the market in 2010 to nearly 84% in 2015. Meanwhile, the participation of member securities companies sharply dropped in both brokerage and dealing with the brokerage share decreasing from 50% in 2010 to 13.38% in 2015, the dealing of securities companies decreased from 11.65% in 2010 to 2.64% in 2015. - Liquidity: Over the past few years, the number of bond codes traded was 463/969 codes, accounting for 47.78% of the total codes in the market. In 2010, the average liquidity (calculated by traded value over list- ed value of the market) was 0.35; 0.6 in 2012 and 0.9 by the end of 2013. 6 Journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS Unit: billion VND Source: Hanoi Stock Exchange Chart 4: Government bond transactions (2010-2015) 7journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS Unit: billion VND Source: Hanoi Stock Exchange Chart 5: Outrights share of foreign investors (2010-2015) Source: Hanoi Stock Exchange Chart 6: Outrights volume by remaining terms (2010-2015) 2. Evaluation of the development of government bond market in Vietnam 2.1. Achievements During 2010-2015, the government bond market gained some encouraging results as an important mobilizing channel for development, a signal for the macro-economic administration, especially in coordi- nating financial - monetary policies of the government as well as building the image and rating of Vietnam in the international financial market. First, the government bond market fulfilled its duty as a channel for raising medium and long-term funds for development. Over 5 years (2010-2015), centralized bidding at HNX raised VND 835,253 billion for the State budget including VND 711,037 billion for the State Treasury, 16 times as much as the period of 2000-2008. Particularly in 2012, bidding became the major chan- nel for capital raising for the budget by issuing bonds with a dramatic increase in value. Second, bidding sessions were organized competi- tively, transparently, openly and increasingly profes- sional. The issuance of the government bonds was reformed completely towards the goals of restructuring public debts and generating a standard product for the financial market. Schedules for issuance were made public and the disclosure of bidding results, volumes, terms and interest rates enabled market participants to manage their funds and the participation in the bid. The system of bidding organizers was rearranged. The State Treasury as the largest issuer successfully organ- ized programs to issue bonds in bulk, additional bonds and swap bond. These partly made fundamental changes in the product quality of government bonds in the financial market. Third, the types of products were various with shortened time for transaction and improved market liquidity. In order to diversify the products in the market, the development of new products was one of the major 8 Journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS Unit: % Source: Hanoi Stock Exchange Chart 7: Ratio of bond transaction by operations points. Apart from the traditional products, new trad- ing tools like futures, zero coupon bonds, Repo pack (including Sell/buy back Repo, Borrowing-Lending Repo, Cross currency Repo)... were launched and wel- comed by market participants as well as investors. Regarding Bond Futures, HNX is coordinating with State Securities Commission and Nomura consultants to deploy the proposal of derivative securities market for the approval of Ministry and the government. Moreover, the number of listed bonds was reduced to 90 from 300, with the average size of 6 times for each code, which could improve the liquidity of government bond trading in the secondary market. Government bond registration and depository from bidding to listing, trading had been improved and shortened from 15 days to 10 days, 6 days, 4 days to enable bidders to complete the transactions right in the secondary market. Market liquidity was raised greatly with the aver- age trading value increasing by 10 times over 5 years, from VND 370 billion/ session in 2010 to VND 3,655 billion in the first 6 months in 2014. The ratio of sec- ondary sales and the outstanding bond value also rose 2.6 times. By the end of 2015, the total value of out- standing government bond portfolio reached approxi- mately VND 753,000 billion, 4 times higher than 2010 and equaling to 18% of GDP. The market size gained 23% growth rate over 5 years. It has been rated as the leading growth in the emerging economies in East Asia and ASEAN + 3. Fourth, the number of traders and investors was steady and on the rise. Specialized government bond market currently has 54 participants including 27 commercial banks and 27 securities companies. The system of bidders is rela- tively stable and professional. Commercial banks have steadily played their role in both primary and second- ary markets. There have been some positive changes in the types of investors. In addition to commercial banks, insurance companies, fund management com- panies and foreign investors have participated actively in the market. Fifth, technical infrastructure and market informa- tion system have been improved. All activities of bidding, trading, information have been performed uniformly on a modern technological base system. Electronic bidding system connects directly to mar- ket participants to bid online and links to Ministry of Finance and State Treasury to directly supervise and administer each session for the convenience of investors and close control of the authorities. The bid- ding system was designed together with trading and information system for the connection between pri- mary and secondary markets. The procedure from bid- ding to listing and trading was completed automatical- ly, which could reduce time and errors. The infrastruc- ture of secondary market has also improved. In March 2013, the 2nd version of government bond trading sys- tem was officially launched with promising feedback from participants. Trading functions were completed with additional risk management tools to assist investors in exchanging information, discussing the deals and keeping track of the results. Market information system was strengthened. The central portal was initially formed. Market indicators were also supplemented. From March 2013, the yield curve was officially adopted and operated steadily, which provides fundamental information on changes in interest rate of different trading bonds in the secondary market. It is also a reference indicator for macro-eco- nomic administrators, issuers as well as investors. 2.2. Limitations The government bond market still faced such limi- tations as follows: First, fixed - interest government bonds were the single item in the market. Limited choices discouraged investors, which made the market less lively and nar- rower. HNX has made some efforts in researching new products, but has not had any positive results. Second, investors in government bond market have yet to be professional. Trading activities by institution- al investors like commercial banks and securities com- panies increased, but not enough to become market makers. 9 journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS Third, trading methods in secondary market have been simple. From the beginning, bonds have been traded by two forms: outright và repos. Fourth, the size of government bond market in Vietnam remained modest compared with the devel- oped ones despite dramatic increase recently with the relatively small listing scale. 2.3. Causes There are some causes to the weaknesses in the government bond market in Vietnam as follows: First, market information and technological infra- structure are limited Despite some big improvement, the market informa- tion system has not been able to prevent risks, to enable participants to look for partners easily if needed. It has just provided basic data without value-added and com- bined information, predictive indicators for investors. Technological infrastructure for transaction, clear- ing, information exchange has not met the requirement for centralization and sharing of information. It has not connected to the international portal to facilitate for- eign investors. HNX has just established the trading portal with the international trading system Bloomberg. Second, issuance planning by issuers is still inade- quate Schedules for issuance have not been specified. The State Treasury has just built the mobilizing plans for years and quarters without any comprehensive strategies for fund raising. Therefore, the issuance of government bonds has been highly passive and uneven at different times. Third, legal system for the market operations has not completed The current legal framework for supporting mech- anisms like the system of Primary Dealer (PD), Mark to Market has not been specified. The regulations on reporting have been procedural with some mismatches to the market conditions leading to some unqualified operations. The highest legal document on the issuance and trading of government bonds was only Decree of the government, but not yet to be built into laws. The lack of legal documents has hindered the operation of the market and the participants, especially institutional investors and professional market makers. The regula- tions on the authority of administration agencies have not been clear, which reduces the management of authorized agencies and the effectiveness. Fourth, there have been no credit-rating agencies in the market Credit rating is an important and necessary indica- tor for market development, but there is a lack of these organizations in the government bond market in Vietnam. Investors in the market have to evaluate and analyze by themselves, which is very time - consum- ing, costly and infeasible sometimes. It could be easier to identify risks with the assistance of credit rating in the market. Ministry of Finance has planned to devel- op a credit rating system, but it has been on discussion. 3. Orientations and solutions to develop govern- ment bond market in Vietnam to 2020 Development orientation - Products: Product diversification is significant. It helps fully mobilize idle funds in the society, increase the choices for investors and diversify the market. Therefore, it is necessary to provide a variety of prod- ucts in terms of interest rates, types and payment meth- ods. In addition to the original products, it is essential to introduce derivatives such as futures, term contracts, options, bond index, etc. - Trading methods: Apart from two existing meth- ods of outright and repos, it is needed to adopt repur- chase trading (repo-sell-buy back, cross-currency repo) at the right time. - Investors: Beside current investors, it is vital to attract more investors such as social insurance organi- zations, insurance funds or investment funds, etc. - Information and technological infrastructure: A modern electronic trading system and a comprehen- sive, exact and updated database will improve the effectiveness of the market supervision in order to (i) Easily identify and prevent errors and fraud; shorten time of circulation for products between markets; (ii) Ensure the uniformity of product development, improve the product attractiveness by coordination in developing new original products and new trading tools so as to improve the security and liquidity; (iii) Assist the connection between issuing and trading market through financial leverage; (iv) Improve the quality, capabilities and effectiveness of the mecha- nisms for checking and monitoring market operations of administration agencies; and (v) Form a foundation to enhance the market transparency, the effectiveness of risk prevention measures. Therefore, it is vital to 10 Journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS research and develop the new functions such as tools to support transaction, to evaluate bond prices, identify yield curve and provide bond index, etc. Development solutions First, disclosing transparent market information: It is important to disclose transparent market infor- mation through the central portal to timely inform the issuance plans, trading situations. This enables the information access to lure investors into preparing and arranging their funds so as to increase the liquidity in the secondary market. On the other hand, as the funds raised by government bonds are a component of the national public debt, information on the public debt (domestic and international debts, etc.) needs to be dis- closed and calculated under international standards. It helps the government actively controls its borrowings and the debt structure and increase the confidence of foreign investors in the pay-back liability and capabil- ity of Vietnam. Second, modernizing technological infrastructure and developing market information system: - Trading system: It is important to modernize the technological facilities for trading, clearing, payment for the State Bank as well as apply technologies in operations in primary and secondary markets to improve the market effectiveness. - Information system: It requires centralizing and sharing information as well as forming the set of indi- cators of the market to improve the market control, monitoring and administration. There is a need to found the common database for the debt market, trad- ing and issuance records. Value can be added by the database from the set of indicators such as market, term risks, portfolio risks, etc. Moreover, it is necessary to develop the coopera- tion with international communication agencies like Bloomberg, Reuter, etc. to gradually integrate into the regional and international bond markets. Third, completing legal framework on the market: Although the legal framework on the market has been relatively comprehensive, there are still some unsuitable regulations compared with the international standards and the market conditions in Vietnam includ- ing issuance and clear schedules. It helps improve the market transparency and the participation of bidders in the primary market. It is essential to issue a regulation on derivatives such as Bond Index, Bond Forward, Bond futures, Bond Option, Cross repos currency, STRIP... The government should also issue regulations on the operation of credit rating agencies, Primary deal- ers (PD) to issue bonds in the primary market and improve liquidity in the secondary market. Despite the early formation of PD in the primary market in 2012, it has not been comprehensive. It is necessary to specify the authority and responsibility of the participants. A complete PD mechanism will maintain and improve the market flexibility for government bonds after issuance. It will also enhance the feasibility of bond trading thanks to price competition between market makers. Bidders require higher liquidity assistance in both pri- mary and secondary markets. Investment incentives are also important to (i) attract foreign individual and insti- tutional investors; (ii) promote the diversification of domestic and international entities for new comers. Besides, it is vital to have a policy to develop markets makers with professional expertise and financial sources to boost trading in the secondary market. Fourth, other solutions: Ministry of Finance needs to keep track of and evaluate the operations of market participants to select the high quality system of first-level agents as the mar- ket makers with specific rights and duties. Issuance in large quantities should be applied by all issuers. Vietnam Bond Market Association (VBMA) should coordinate to pilot the trading of some derivatives by voluntary market makers. Tools for improving liquidi- ty could be utilized including repurchase, convert and combination with other terms and other issuers, etc. The State Securities Commission should reinforce the operations of bond market control bodies, provide transparent information and coordinate with HNX to develop the information system for government bond market. Hanoi Stock Exchange ought to amend regula- tions related to trading to match the actual market development. New products should be launched with upgraded system and increased utilities for partici- pants. International integration needs to get deeper based on the existing connection with international communication agencies, international forums, region- al and international bond markets to attract foreign investment flows. Vietnam Government Bond Market Association is required to issue the code of conduct for the partici- pants; act as a center for building model contracts for 11 journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS Outrights and Repos transactions in accordance with the global GMRA standards; promote the standardiza- tion of government bond trading for other complicated derivative tradings; organize workshops and dialogues between participants and administration agencies to help them better understand the market demand and get feedback on regulations. Conclusion: The development of government bond market plays an important role in the course of socio- economic development in every country including Vietnam. For the safe and effective market develop- ment, it is essential to have a systematic policies on suppy and demand, the system of market participants, the complete infrastructure and legal framework. References: 1. Law on Securities No.70/2006/QH11 on 29 June 2006 2. Law No. 62/2010/QH12 on 24 November 2010 amending and supplementing some articles of 2006 Law on Securities 3. Hanoi Stock Exchange, Review on 5 year oper- ation and development of government bond market during 2009 -2014 4. Hanoi Stock Exchange, 2015 Annual Report 5. Website of Hanoi Stock Exchange: 6. Website of Ministry of Finance: 7. Website of State Securities Commission: Summary Thò tröôøng traùi phieáu chính phuû (TPCP) coù vai troø quan troïng trong söï nghieäp phaùt trieån kinh teá - xaõ hoäi cuûa moãi quoác gia. Nhöõng naêm gaàn ñaây, thò tröôøng TPCP Vieät Nam ñaõ ñaït ñöôïc nhöõng thaønh coâng nhaát ñònh nhöng cuõng coøn toàn taïi nhieàu haïn cheá, baát caäp. Treân cô sôû nghieân cöùu thöïc traïng phaùt trieån thò tröôøng TPCP Vieät Nam giai ñoaïn 2010-2015 töø caùc nguoàn thoâng tin, döõ lieäu thöù caáp, baøi vieát chæ ra moät soá haïn cheá veà chuûng loaïi haøng hoùa, phöông thöùc giao dòch, cô sôû nhaø ñaàu tö; laøm roõ caùc nguyeân nhaân chính daãn ñeán nhöõng haïn cheá trong quaù trình phaùt trieån cuûa thò tröôøng nhö heä thoáng thoâng tin thò tröôøng, caùc ñieàu kieän cô sôû haï taàng, moâi tröôøng phaùp lyù… Töø ñoù ñeà xuaát caùc ñònh höôùng vaø giaûi phaùp cho söï phaùt trieån an toaøn, hieäu quaû cuûa thò tröôøng trong thôøi gian tôùi. 12 Journal of Trade Science JOURNAL OF TRADE SCIENCE ’S JTS NGUYEN THI PHUONG LIEN 1. Personal Profile: - Name: Nguyen Thi Phuong Lien - Date of birth: 08 January 1965 - Title: Associate Professor, PhD - Workplace: Thuongmai University - Position: Dean of Postgraduate Falcuty 2. Major research directions: - Finance - Banking - Stock Market 3. Publications the author has published her works: - Trade Science Review - Joural Economic Development - Joural Finance - Joural Communist - Joural Monetary and Financial Market - Trade Review

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