Hanoi (VNS/VNA) - On the firstday of the New Year, the Government issued Resolution No 01/NQ-CP/2019 for therobust development of the securities market, especially the derivativessegment.

In 2018 the VN-Index was down 9.3 percent, which created an opportunity for thederivatives segment to come into its own.

Officials from the Hanoi Securities Commission (HNX) said the derivativestransaction numbers averaged 78,800 per session, seven times higher than thenumber in 2017.

The open interest numbers were consistently rising, reaching 21,635 contractsby year-end, 2.7 times last year’s figure.

Open interest is the total number of options and/or futures contracts that arenot closed or delivered.

Experts said the main reason for the derivatives market’s strong growth lastyear was the slowdown in the basic securities market.

Tran Van Dung, Chairman of the State Securities Commission of Vietnam, told Dautu Chung Khoan newspaper that in 2018 the Government’s standingcommittee, for the first time ever, had to meet to discuss measures to improvethe situation since the Vietnamese securities market came into being 19 yearsago.

With little money to be made in stocks, investors increasingly switched to thederivatives market.

This also had a positive impact on the basic securities market since investorsno longer had to bargain away their stocks.

Some experts even believe that the fall in the VN-Index was contained at 9.3per cent thanks to the growth of the derivatives market, and could have beenworse without it.

Analysts said derivatives have become an important tool for investors to hedgerisks, and this also explains why the Government expressed determination todevelop the derivatives market in its recent resolution.

However a lot of things need to be done to develop this market, according toexperts.

There are three big problems in the securities that need to be addressed first,one of which is the lack of institutional investors.

Institutional investors include banks, insurance companies, pensions, hedgefunds, REITs, investment advisors, endowments, and mutual funds.

Now 99 percent of those participating in the derivatives market are retailinvestors.

This is different from other countries where a majority of derivatives marketparticipants are institutional investors.

This is one the reasons delaying the launch of a derivative product ingovernment bonds, also called g-bond futures contracts.
But Vietnam still lacks a policy framework todevelop institutional investors.

Another problem facing the derivatives market is that it has only one product —the VN30-Index futures.

The VN30-Index captures the performance of the top 30 largest stocks on the HCMstock exchange in terms of market value and liquidity.

But the limited number of stocks on the HCM stock exchange reduces thepossibility of launching new products.

Yet another problem is that Vietnam still does not offer investors tax andother incentives as many other markets did in their initial stages ofdevelopment.

This problem can be resolved only by the Government and National Assembly, theexperts said.  

The Ho Chí Minh Development Commercial JointStock Bank (HDBank) has earmarked a preferential credit package worth 10trillion VND (440.53 million USD) for those involved in hi-tech and cleanagriculture around the country.

Loans in the package carry interest rates that are 1 percent lower than onnormal loans, and borrowers can use assets created with the loans as mortgage.The tenor of the loans will be up to 10 years.

HDBank said the package was aimed at fostering the trend of individuals andbusinesses wanting to invest in the production of green products to meet theincreasing demand.

It said all enterprises that wanted to develop new agriculture projects using hightechnology can get loans under this programme.      

HDBank also had special financial solutions to enable the enterprises todirectly supply consumers with their clean agricultural products and forexports.

Not only HDBank but also many other credit institutions are beginning to focuson eco-friendly projects, green products and services and clean and renewableenergy with an eye on sustainable growth.

NamABank recently signed an agreement with Global Climate Partnership Funds –CCPF to carry out a green credit programme to lend to projects that arefriendly to the environment and society.

The lender’s General Director, Tran Ngoc Tam, told Sai Gon Giai Phong newspaper that climate change and environmental pollution are some of theworld’s biggest problems, and so his bank would like to give a helping hand tobuild a green environment and sustainable society through this programme.

Other banks such as Vietcombank, Agribank and Vietinbank have also earmarkedconsiderable amounts of money for lending to renewable energy projects.

According to analysts, in recent years the banking sector has made someadjustments to their credit flows to align them better with the Government’sgreen growth goal.

This is clear from the fact that the banking sector’s outstanding green financeloans have kept increasing: from 180.12 trillion VND (7.93 billion USD) in thelast quarter of 2017 to 235.72 trillion VND (10.4 billion USD) in the thirdquarter of last year.

The banking sector is thus playing a significant role in green investment anddirecting credit to eco-friendly sectors. Their credit policies, whichprioritise environment-friendly products, are encouraging borrowers toimplement green projects rather than those that have a deleterious effect onthe environment.

But other experts said the banking sector’s green lending was quite limitedwhen compared with loans to other sectors, particularly real estate, whichamounted to 471 trillion VND (20.75 billion USD).

The State Bank of Vietnam said only 24 green projects had so far this yearinterested banks.

Besides, the green loans were given mainly in agricultural and rural areas, itsaid.

The experts pointed out the reasons for the banks’ moderate green investment,one of which was that bankers were still afraid of bad debt risks.

According to an executive at a commercial bank based in HCM City, since greenprojects take long to break even, are costly and come with high market risks,the bad debt risks are high.

Technical assessments of eco-friendly technology projects are also very complexand this is another reason for banks to be wary about lending to them.

The spokesperson for the International Finance Corporation in Vietnam, anorganisation dedicated to helping the private sector within developingcountries, said in Vietnamese banks’ lending to green projects still faced manydifficulties because of the lack of a proper legal framework.

Banking industry insiders said to encourage banks to invest in eco-friendly technologyprojects the central bank should allow them to use short-term deposits forlong-term loans.

They should also be given refinancing and rediscounting preferences and allowedto reduce the compulsory cash reserve ratio if they lend to green projects.

The cash reserve ratio is the percentage of deposits banks are required tomaintain in cash with the central bank.

Experts said to effectively develop green credit, banks had to spend aconsiderable amount of money on building a social and environmental riskmanagement system and providing professional skills training to their staff.

Because of this, it was necessary for the Government to have preferentialpolicies for those banks offering green credit and create close ties betweenbanks, official agencies and enterprises, they added.-VNS/VNA