INTRODUCTION

A healthy financial market is crucial for a nation’s economic development: by

channelling capitals from people who are in excess of capital to people who are in short
(of capital) to improve the (efficient) use of scarce resources. However, it is a
sophisticated organic structures with many players, rules and instruments and building a
well-structured market is desirable for any economy.

Before the Open Policy in 1986, Vietnam had a command economy with the central
government controlled almost all the activities of the economy from manufacture to
distribution and wealth allocation. The ideas of financial market had no reason to appear
since all resources are controlled and distributed by the government including financial
means.

From 1986 to 2000, before the naissance of the Stock Trading Centers (In Hanoi and Ho
Chi Minh City in 2000, then Hanoi Stock Exchange and Ho Chi Minh Stock Exchange in
2005), the main activities in the capital market is bank loans to individual and
corporations as well as micro loans of the people’s credit funds (quy tin dung nhan dan).
From the year 2000, though the volume of the market as a whole and the portion of
equity market (market capitalization) is growing, the role of debt capital ( i.e. bank’s
credit and bonds, notes, bills) is prominent as it is about 150% of GDP (2010) which is
more than four time the size of share market capitalization (equity). In the debt market,
the size of bank’s loans is far more significant than the bond’s market (about fifteen times
bigger in volume) 1 But the banking sector has to move through a very tough period from
2010 until present because of the credit crunch as a result of the government policy to
alleviate stagflation and non-performing loans (NPLs).

Our essay is made to provide readers with a brief understanding of the debt market in
Vietnam and its road ahead.

1
NGUYEN Quoc Hung-- Vietnam Capital Markets: Young and Growing
1. THE MARKET

As regards to the debt market, the commercial banks is the major players with a little
more than 100 commercial banks licensed to operate in Vietnam in which more than 50
are foreign banks.2

Table 1. Vietnam Credit Volume3

Year 2005 2006 2007 2008 2009 2010 2011 2012 2013
(expected)
Volume 72% 76% 93% 91% 120% 135% 101% 94,5% 95%
, as of
GDP

The outstanding bank lending has gone through fluctuations in term of growth rate as
described in the following chart:

Figure 1. Outstanding Debt Growth4

Debt Growth Rate

60%

50%

40%

30%

20%

10%

0%
May-05 Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13

2
www.sbv.gov.vn
3
The data is collected and derived from different sources, we have chosen to monitor the move of the debt market
from 2005 because of our belief on its significant characteristics with ups and downs of the economy as a whole as
well as the market.
4
www.sbv.gov.vn and http://cms.vcsc.com.vn
The fluctuations of outstanding debt growth rate is due to the significant ups and downs
of the important markets (i.e. share capitalization market and real
property/infrasstructure/construction market)

In order to understand the fluctuations of the outstanding debt growth rate, we have to
look at the bank loans to different sectors as described in the following charts:

Outstanding Debt by Industry (08/2012)5

Outstanding Debt by Industries August 2012

Manufacturing
Construction
Agriculture
Trading
Transport& Telecom
As a developing
Others

economy, with
manufacturing,
construction,
trading and
agriculture
(including aquaculture) are the main sectors which use bank loans as the financing tool.

The term structure of credit, banks in Vietnam have different term structures to offer to
their clients: short term lendings less than 12 months, medium-and long term lendings
normally over 1 year to 3 or 5 years, some even offer 30- year loans.6

According to some banking reports from accounting firms, the term structure of
outstanding loans are estimated as in the chart below

Term Structure of Outstanding Debt (2013)7

5
www.cafef.vn
6
Sacombank had offered their clients up to -20 –year loans when they bought properties developed by Sacomreal,
the real estate development arm of the bank.
Other banks offers loans up to 30 years in some energy projects under the form of syndicated loans
7
http://www.kpmg.com/VN/en/IssuesAndInsights/ArticlesPublications/Documents/Advisory/Vietnam%20Banking
%20Survey%202013%20-%20VN.pdf
 Term Structure

up to 12 months
12-60 months
Over 60 months

Consumer-Credit and Business Credit

Non- Performing Loans and VAMC (Vietnam Asset Management Corporation)

Factoring and Documentation Credit??? (Các nghiệp vụ cho vay ứng trước vốn,
chiết khấu thương phiếu và tín dụng chứng từ khác)

Shark Loans (Tín dụng đen)

This is a report on the lending activities of major commercial banks in Vietnam on 2013, we believe the term
structure has little change in the last three years since the sectors operations remained quite stable.