Central Bank Official Proposes Measures to Support Stock Market

Thursday, May 15, 2008
Nguyen Dai Lai, deputy director of central bank’s Banking Development Strategy Department, have given some proposals to support the stock market in a context of an unstable financial market.

First, the government should issue long-term bonds with maturity of ten years or more and interest rates fixed in every two years, to ensure the buyers to not have less profit than depositors. The proceeds should be invested in national key projects in manufacture, high technology, infrastructure development, transport, education and training and health care.

Second, Vietnam should conduct IPO of large-scaled companies, but let the market decide the initial prices. Lai explained that most of Vietnamese companies used to offer high prices at their initial public offerings, making commodities of the stock market to have lower quality in comparison with the prices.

Third, commercial banks should be required to spend a certain savings ratio to invest in long-term government bonds deposited at central bank, as a safe tool to access to the open market in case of liquidity risk.

Four, securities companies should be encouraged to open depository trading accounts at commercial banks for better management.

Fifth, the country should have policies to enable big importers of goods and services to issue foreign currencies bonds in domestic market to raise funds.

Sixth, Vietnam should make a list of debit securities for discount and rediscount in order to boost liquidity for the stock market.

Lai said the financial market has recently had instabilities.

The stock market is a medium and long term investment market, but many investors have borrowed short-term loans to invest in this market, creating an incoherent link between the stock and monetary markets.

Debit securities make a small contribution of commodities in the stock market, because authorities have unintentionally drive investors’ interest in capital securities.

Commercial banks are facing a severe shortage of cash, while it is still superfluous in circulation, causing the inflation to rise 21 per cent on-year in April.

After eight years of operation, the stock market now is not proved as an effective channel for raising capital in medium and long term for the economy, Lai said. (SBV)