this paper focuses on corporate bonds, highlighting their necessity for economic growth, generally in the world and particularly in Vietnam. It consists of three chapters:
Extracts from this essay...
Table of Contents ACKNOWLEDGEMENTS 1 INTRODUCTION 2 CHAPTER 1 3 CORPORATE BONDS - THE BASIC KNOWLEDGE 3 1. Concept of corporate bonds 3 1.1 Definition 3 1.2 Features 3 2. Risks and credit ratings 5 2.1 Risks 5 2.2 Credit ratings 6 CHAPTER 2 8 CORPORATE BONDS - NECESSARY FOR THE ECONOMY 8 1. Corporate bonds in the world's market 8 1.1 Corporate Bond Market at a glance 8 1.2 Bond performance on major markets 10 2. The role of corporate bonds 10 2.1 What do investors benefit from corporate bonds? 11 2.2 What do issuers benefit from corporate bonds? 13 2.3 What happens to an under-developed corporate bond market? 14 CHAPTER 3 17 CORPORATE BONDS IN VIETNAM 17 1. Vietnamese corporate bonds background 17 1.1 Market overview 17 1.2 Have a look at Vietnam's corporate bonds 17 2. The necessity of corporate bonds on Vietnam's market 20 3. Action needed 21 APPENDIX 23 CONCLUSION 26 ACKNOWLEDGEMENTS I am deeply indebted to my teacher, Mrs Le Thi Hai, MA, for her useful instructions and valuable recommendations during the initial preparation of this paper. Her advice has been important in making this thesis well-organized and coherent. I also gratefully acknowledge her grammar corrections as well as all of her suggestions. I would like to express my thanks to my friends: Duong Thanh Nga, at the Bank Institue; Tran Hong Nhung, at the Economics University; who have given time and attention to my preparation. I am also grateful to my classmates: Luong Thi Ngoc Tu, Vu Huong Lan, Le Hoang Long and Dao Nguyen Vinh Yen in class A3-K42-KTNT for their kind encouragement and assistance during the development of my thesis. Finally, I wish to express my special thanks to my family for their care, understanding during the preparation. INTRODUCTION The 21st century witnesses the growth of the world's economy accompanied by the development of monetary and financial markets.
This road, sometimes referred to as the Japanese growth model, is the one chosen by many Asian nations in recent decades. According to a recent report, banks hold over 60% of savings in Japan vs. less than 20% in the U.S. for example. ==> An over-reaching banking system suffers from four serious problems: First, credit decisions are in the hands of relatively few decision-makers compared to the case in a well-developed bond market. In Thailand, for example, a large portion of total lending was done by just four banks. Second, bankers are more willing to engage in "crony capitalism" since bad loans can often be kept from being written down for long periods with the government's tacit or express approval - in contrast to the situation for corporate bond investors, who generally must face the music from the start. Third, bond investors have a better record than bankers in assessing risk - witness the savings and loan crisis in the U.S. and the recent generous credit extension to Long Term Capital Management to take two examples. The main reason for this is that bond investors have a more direct stake in the outcome and thus a stronger motivation for making the appropriate risk adjustment. Finally, since banks are more highly levered than the typical bond investor, the systemic risk component is far greater than when the relative sizes of the banking system and the corporate bond market are more balanced. ==> The consequences of an oversized banking system are far-reaching. Banks in possession of bulging deposits need outlets for their funds. When demand is insufficient, the tendency is to "force" them on perhaps unwilling borrowers by easing the usual terms or by other means. In the keiretsu environment, for example, the placement of unneeded loans was readily accomplished. This in turn tends to relax the borrower's investment criteria, resulting in a low return on capital investments and on equity.
Furthermore, corporate bond market contributes its performance to the balance of world's economies, preventing them from financial crises. According to the advantages, corporate bonds, specially a strong and professional corporate bond market, are what Vietnam need to fuel economic growth. To mobilize and exploit effectively domestic capital sources are the best way for us to improve our strength when facing challenges during the period of joining WTO, instead of relying almost on commercial banks, foreign loans, official development assistance (ODA), investment through stock exchange, etc. This keeps our country away from becoming a bubble market which usually ends with a crisis like the case of Thailand in 1997. Vietnam corporate bond market is just at its initial stage of development. There is much to be done in order to make it a key capital channel to fund most business activities. However, a recently move to issue bonds to raising capital of many commercial banks and giant corporations signals a good improvement. Hopefully, corporate bonds will become as familiar with Vietnamese investors as stocks do, and will be appreciated as fully as their nature is. Reference 1. Jack Clark Francis, Management of Investments, 3rd edition, McGraw-Hill, Inc copyright 1993 2. Frederic S. Minshkin, Monetary, bank and financial market, Financial publisher, 2001 3. Securities Market textbook, Bank Institute, 2005 4. The Bond Market Association http://www.investinginbonds.com/ 5. Nils H. Hakansson, The Role of a Corporate Bond Market in an Economy - and in Avoiding Crises, Research Programme in Finance Working Papers, University of California, Berkeley, 2005 6. "Proposal for establishment of an Asia International Bond Market" research http://www.nira.go.jp/ 7. Size and structure of World Bond Market 2005 research, by Global Fix Income Research Team of Merrill Lynch, Inc. http://www.merrilllynch.com/ 8. Financing for Development, the Case of Vietnam, Ministry of Planning and Investment of Vietnam at Informal Experts' Workshop, Paris, 6-7/3/2006 9. Vietnam economic times http://www.vneconomy.com.vn/ 10. State Securities of Vietnam (SSC) http://www.ssc.gov.vn 11. State bank of Vietnam (SBV) http://www.sbv.gov.vn/ 27 Corporate bonds - necessary for the economy ______________________________________________________________________ ___________________________________________________________________ Dang Bao Ngoc - A3K42 - KTNT
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