Multiple financial risks still challenge Vietnam

Global financial markets have been negatively hit and significantly shaken by the ongoing unpredictable, relentless and complicated developments under the Covid-19 pandemic, leading to continued global financial instability.

Multiple financial risks still challenge Vietnam

Although the major risks to the global financial markets have been identified and cautioned, there still remain potential risks, as a sudden unexpected rise of the pandemic may reoccur at any time, or the pandemic may even continue unabated for very many years to come. Vietnam too needs to be well prepared to face unforeseen challenges brought about by the virulence of the Covid-19 pandemic.

Global financial risks

The first biggest risk confronting global financial markets is the debt volatility risk, which also includes government as well as corporate debt. In 2021, although public debt and fiscal deficit are not as large as in 2020, they will still remain high, especially in developed countries, causing global debt burden to continue to rise to 365% to 370% of GDP. The default rate of Chinese corporate bonds is forecast to increase by 10% to 30% in the period of 2021 to 2022. Indirect investment inflow (FII), although more stable since the end of 2020, is still at risk of a decline in 2021 to 2022.

According to IMF forecast of April 2021, if the progress of vaccine supply worsens, the FII capital flow will decrease by about 25% compared to 2020. With a high debt risk and when interest rates rise, market liquidity decreases, debt repayment obligations increase, and there is unpredictable financial burden and risk, especially in developing and emerging countries, which are more vulnerable and have more difficulty to access the Covid-19 vaccine.

The second big risk is the uncertain and uneven recovery of the global economy, causing increased financial risks. The economic and health crisis caused by the Covid-19 pandemic has led to a decline in global economic growth by -3.3% in 2020, the lowest level since 1930. The current recovery momentum is forecast at 6% in 2021 and 4.4% in 2022, according to the International Monetary Fund report in April 2021.

However, economic recovery depends heavily on the development, supply, distribution, and number of vaccination counts of the Covid-19 vaccine on a global scale. According to CitiResearch in February 2021, the vaccine will help global GDP grow by 4.1 percent in the period of 2021 to 2022 from improved public health, control of the disease, and through boosting investment demand, trade and consumption. However, the distribution of vaccines is facing many difficulties. This has slowed down the economic recovery momentum, which can further increase financial risks.

The third risk is of institutions failing to keep up with the development of financial markets, or find effective disease response solutions and coordination mechanisms. Institutions also face many uncertainties and challenges, such as the development of digital economy and digital finance.

The fourth risk is the growing financial crime worldwide. According to Cyber Security Software Company (McAfee) and Center for Strategic and International Studies (CSIS), cybercrime causes the loss of 1.2% global GDP, which was about US$ 1 trn loss in 2020, a 50% increase compared to 2018. Besides many other intangible damages, financial crime has increased sharply in the context of the Covid-19 pandemic. According to EMR Consulting Company, the global financial crime management and control market is worth about US$ 1,100 bn, and is forecast to increase by 5.7% per year in the period 2021 to 2025.

 

Challenges for Vietnam

Several risks and challenges are expected to confront Vietnam, and impact its financial system. The first will be financial risk, although Vietnam has been highly successful in its disease control strategy, and had the highest economic growth in the world in 2020, the risk level of the Vietnamese financial market is rated average. This average rating has potential to turn into a state of higher risk unless dealt with effective measures.

The risks in Vietnam's stock market are relatively high due to its small size, fewer commodities, low transparency, and high level of volatility among individual investors. In addition, the Vietnamese banking sector is always under pressure to increase capital, due to a thin capital base, while credit and investment is quite high, at about 14% per year in the past ten years. The risk of bad debt may also increase by 2.5% to 3% by the end of 2021. This requires responsibility to set up additional risk provisions for three years from 2021 to 2023, as per Circular 03 dated 2 April, 2021.

The second big risk could be challenges that lie within the Vietnamese economy. Although positive economic growth has been achieved in the context of the current global recession, the Vietnamese economy is still facing five major internal challenges, namely, low growth quality, competitiveness, and restructuring; competition pressure and legal risks in the integration process; results of three strategic breakthrough polices covering institutions, human resources and infrastructure that have not yet met expectations; an aging population that is affecting the quality of human resources; and climate change issues as Vietnam is one of six countries most severely affected.

The third risk is that of institutional progress contributing to improving the economy and the financial system, but is still slow. Although now specialized laws governing the finance-banking sector are being standardized and perfected as per international practices, there lies problems in institutional development especially in digital economy, where new business models are too slow compared to actual requirements. Financial risk management capacity and transparency of investments are still a big challenge in the rapid development of digital economy, and digital finance and currency.

The fourth risk pertains to financial crimes in the Vietnamese banking and finance sector that have become a rather challenging issue. According to Viettel network security company, in August 2020, 90% of the three million cyber-attack warnings were aimed at the Vietnamese financial and banking system. As the financial-banking crime prevention operations still face many challenges due to limitations in management capacity, many security holes need to be promptly fixed. The number of fraudulent attacks on bank account appropriation are also forecast to increase.

The fifth risk is the challenge of developing green finance and green banking. As a country heavily affected by climate change, the trend of green development has become indispensable in the financial economy of Vietnam. Attention has been paid to building the legal system on green finance, especially the National Strategy on Green Growth under Decision 1552/QD-NHNN dated 6 August 2015 and Decision 1604/QD-NHNN dated 7 August 2018. However, Vietnam's green finance has not really become an investment and development trend and is still facing many challenges such as the legal system, or green finance, which is still in its infancy. According to RobecoSAM, a consulting firm specializing in sustainable investment, Vietnam is one of the ten countries with the lowest ESG index.

SGGP

VEPR: Vietnamese economy could grow by 6.3 pct in 2021

VEPR: Vietnamese economy could grow by 6.3 pct in 2021

The Vietnamese economy could grow by about 6-6.3 percent in 2021, said chief economist Pham The Anh from the Vietnam Institute for Economic and Policy Research (VEPR) 

 
 

Other News

.
New stock trading system from RoK in trial run from next week
New stock trading system from RoK in trial run from next week
BUSINESSicon  11/06/2021 

A trial run of a stock trading system from the Republic of Korea, known as KRX, will be conducted from Monday (June 14) next week, Ho Chi Minh Stock Exchange (HoSE) announced Thursday.

HOSE technical problems continue despite promises to fix the problems
HOSE technical problems continue despite promises to fix the problems
FEATUREicon  11/06/2021 

The stock market is witnessing trading sessions with sharp declines amid technical problems that have gone unresolved for years despite repeated promises from the management agency.

Domestic retailers realise their potential of retaking Vietnam
Domestic retailers realise their potential of retaking Vietnam
BUSINESSicon  11/06/2021 

The rise of local retailers via mergers and acquisitions is expected to transform the competitive landscape of Vietnam’s retail market, which used to be dominated by foreign investors, and help domestic equivalents complete their ecosystems.

Solutions urged after repeated downtime at congested Ho Chi Minh Stock Exchange
Solutions urged after repeated downtime at congested Ho Chi Minh Stock Exchange
BUSINESSicon  11/06/2021 

This month’s adoption of new infrastructure is expected to disentangle technical congestion in the Ho Chi Minh Stock Exchange – a dragging conundrum for both institutional and mom-and-pop investors.

More than 1,100 workers stopped working due to F1 case in Pouyuen Vietnam
More than 1,100 workers stopped working due to F1 case in Pouyuen Vietnam
BUSINESSicon  10/06/2021 

The F1 case at Pouyuen Vietnam Co., Ltd. (Pouyuen Vietnam), located in Tan Tao Ward, Binh Tan District, has caused more than 1,100 workers to temporarily stop working.

Four lockdowns within 18 months have hit businesses hard
Four lockdowns within 18 months have hit businesses hard
FEATUREicon  11/06/2021 

In the last 18 months, lockdowns and social distancing have been imposed on four occasions. As a result, many enterprises have had to reinvest or restart business because of disrupted production chains during the social distancing periods.

Domestic funds report impressive growth
Domestic funds report impressive growth
BUSINESSicon  10/06/2021 

The total value of assets under the management of domestic exchange-traded funds (ETFs) has soared by 64 percent to 1 billion USD so far this year, while foreign ETFs increased 12 percent to 1.4 billion USD.

Gov’t responds swiftly to COVID-19 economic impacts: ADB official
Gov’t responds swiftly to COVID-19 economic impacts: ADB official
BUSINESSicon  10/06/2021 

The Vietnamese Government has responded swiftly to the COVID-19 economic impacts, which was supported by strong fundamentals, thus ensuring the economy’s resilience, said Asian Development Bank (ADB) Country Director for Vietnam Andrew Jeffries.

Banks cut lending interest rates to lowest level in years
Banks cut lending interest rates to lowest level in years
FEATUREicon  10/06/2021 

Banks have cut lending interest rates, now at the lowest levels in many years, to help people and businesses hit hard by Covid-19.

Gov't reviews Vingroup's proposal on electric-car policy
Gov't reviews Vingroup's proposal on electric-car policy
FEATUREicon  10/06/2021 

Some Vietnamese enterprises have invested in electric-car manufacturing and charging stations, but an overall electric car strategy has yet to be developed by the government.

Apple partner Pegatron injects additional US$101million into Vietnam
Apple partner Pegatron injects additional US$101million into Vietnam
BUSINESSicon  09/06/2021 

Taiwan has granted approval for a further investment of US$101 million by Pegatron Corp, a major manufacturing partner of Apple which operates in Vietnam.

Along with Singapore, Vietnam is expected to lead new cycle
Along with Singapore, Vietnam is expected to lead new cycle
BUSINESSicon  11/06/2021 

Vietnam's economic growth outlook remains optimistic and the economy is forecast to recover to pre-Covid-19 levels in the second half of 2021.

FDI supports Vietnam climb the global value chain
FDI supports Vietnam climb the global value chain
BUSINESSicon  09/06/2021 

Vietnam has successfully transformed into a manufacturing-oriented economy,
supported by stronger global value chain (GVC) participation thanks to a rise in foreign direct investment (FDI), especially in the manufacturing industry.

Business stories May 31–June 6
Business stories May 31–June 6
FEATUREicon  09/06/2021 

People who are worth VND500 trillion are listed among the top 30 richest persons in the US and the top 17 in China, according to Forbes. In Vietnam, such a person would be at the top.

PM wants to reform tax regime to prevent real estate speculation
PM wants to reform tax regime to prevent real estate speculation
BUSINESSicon  09/06/2021 

Prime Minister Pham Minh Chinh has emphasized that the national housing strategy needs to include reasonable social housing development, and the tax regime on land speculators should be adjusted.

Billions of US dollars flow into Vietnam’s stock market despite Covid-19
Billions of US dollars flow into Vietnam’s stock market despite Covid-19
FEATUREicon  09/06/2021 

The stock market has been witnessing unprecedented cash inflow so far this year, even though the Covid-19 pandemic has become more complicated in Southeast Asia.

Expanding action to weed out pandemic
Expanding action to weed out pandemic
BUSINESSicon  08/06/2021 

The prime minister has ordered a series of sturdy actions to fight against COVID-19 and spur on local production, as people look to the government for protection with the spectre of the pandemic looming yet again.

After decade of struggle, HAGL posts loss and gradually 'sinks'
After decade of struggle, HAGL posts loss and gradually 'sinks'
BUSINESSicon  09/06/2021 

The Hoang Anh Gia Lai Group (HAGL) of Chairman Doan Nguyen Duc has gradually withdrawn from the fields of business Duc has been dedicated to for a decade. 

Vietnam a bright spot for foreign investors: experts
Vietnam a bright spot for foreign investors: experts
BUSINESSicon  08/06/2021 

Vietnam has been chosen among leading destinations in Southeast Asia by Japanese investors, Nakajima Takeo, Chief Representative of the Japan External Trade Organisation (JETRO) in Hanoi, has said.

FDI inflows remains spotlight of Vietnam's economy
FDI inflows remains spotlight of Vietnam's economy
BUSINESSicon  09/06/2021 

The government has set up an FDI task force to support multinationals and foreign businesses grasping investment opportunities in Vietnam.

 
 
 
Leave your comment on an article

OR QUICK LOGIN