long-term warranties to demonstrate the high quality of the product. In the credit market, borrowers often have to accumulate a good credit record, demonstrate the feasibility of their projects and their repayment potential, so that banks can assess credit risk and decide to lend. Spence gives an example of the labor market. The sellers in the labor market are job applicants and the buyers are employers. Employers cannot directly observe the abilities of candidates but can only evaluate them indirectly through their qualifications. If less capable people have to spend more time and effort than more capable people to achieve the same level of education, then the more capable people can signal by obtaining qualifications that the less capable people cannot achieve. Or, as another example, the implementation of programs
Expensive advertising, maintaining product warranties, paying dividends to shareholders... these are all ways of sending signals in the marketplace. 6
4.3. Direct supervision
Direct monitoring is a mechanism in which one party to a transaction spends resources to gain control over information over the other party. This monitoring may include increased resources devoted to control and verification. In the financial market, this solution is associated with the requirements for auditing the financial statements of companies by independent auditing companies before they are allowed to be published. In the banking credit activities of many countries, audited financial statements have become an important condition for banks to assess credit risks, appraise projects and make lending decisions. The company owner appoints a supervisor to check and monitor the behavior of his employees, and make decisions
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Salary and bonus increases are determined based on the results of this supervisor's assessment. People who deposit savings in banks need to have specific requirements for the bank's investment activities, and require the disclosure of relevant information to monitor the bank's use of mobilized capital, ensuring capital safety. Venture capital organizations, when deciding to invest in new business projects, often directly assign a person from the fund to participate in the company establishment process to limit information asymmetry and ensure the effective use of their capital.
4.4. Indirect monitoring through incentives:
Indirect monitoring through incentives involves one party to a transaction designing a contract so that the other party feels disincentive to act against his or her interests, and makes the other party feel that compliance with the terms will be in his or her interest. Restrictive clauses can be designed into the contract to discourage the other party from engaging in high-risk activities, limiting the moral hazard problem. Let's go back to the example of lending $1,000 to Uncle C to invest in a typing shop for students to write their theses. If you know that your uncle will use the loan for its intended purpose, you will feel secure in lending it, because the possibility of recovering the capital is certain. However, since Uncle C is likely to use the money to bet on horses, you must prevent this by clearly stating in the contract that the money can only be used to buy a word processor. In general, in order to control moral hazard in loan contracts, lenders need to include restrictive clauses to discourage undesirable behavior and encourage positive behavior. There are four common types of restrictive clauses: Clauses that discourage undesirable behavior,
Incentive clauses, Collateral clauses, Information clauses. These clauses will be discussed in more detail in Chapter III.
CHAPTER II
THE CURRENT STATE OF INFORMATION AMASMUS IN VIETNAM'S FINANCIAL MARKET
I. OVERVIEW OF VIETNAM'S FINANCIAL MARKET
The financial market, including the money market, the securities market (stock market, bond market) and the bank credit market, plays a special role in the effective allocation of capital resources in the economy. Having a healthy financial market is an essential factor to ensure macroeconomic stability, economic growth and enhance the competitiveness of the economy, especially in the context of globalization and international economic integration.
With the process of economic innovation and reform, the Vietnamese economy has gradually transformed from a centrally planned mechanism to a market mechanism and increasingly integrated more deeply into the regional and world economy. In that context, the financial market has also been formed and reformed according to market principles, contributing to the more effective allocation of financial resources and promoting economic growth. On November 7, 2006, Vietnam officially joined the World Trade Organization (WTO), which means opening up many opportunities as well as challenges for the country's economy in general and the financial market in particular.
In recent years, along with the economic reform process, Vietnam's financial market has had certain developments. First of all, the basic constituent markets of the financial market have been formed and gradually perfected. Many types of financial intermediary institutions have been established.
In particular, the stock market has been established and made initial contributions in mobilizing long-term capital sources for the economy.
Second, over the past 5 years, the banking system has been restructured to reduce weaknesses in the system and deviations in credit policies. The restructuring program focuses on improving the health and strengthening the financial capacity of the banking system, especially state-owned commercial banks. Credit activities have been innovated in the direction that credit institutions have autonomy and self-responsibility in lending decisions, customer selection and loan security measures based on commercial principles, ensuring safety and efficiency.
Third, advanced financial management principles and international standards on transparency, accounting, auditing, supervision, etc. have been gradually institutionalized and applied more widely in practice. Institutions on corporate governance (including banking) have also been improved, especially for companies listed on the stock market.
Last but not least, the legal framework of the financial market is increasingly in line with international standards and practices. Credit policies are increasingly treating private and foreign-invested enterprises more equally. Foreign financial institutions are increasingly allowed to expand their scope and areas of business operations.
Despite many achievements, Vietnam's financial market is still considered underdeveloped. Financial depth, measured by the ratio of total means of payment (M2)/GDP and total domestic credit/GDP, has increased significantly, from under 20% in 1990 to 50.5% and 35.1% in 2000 and 79.0% and 70.2% in 2005, respectively. However, these indicators are only equivalent to
with the index of countries in the region in the late 1980s - early 1990s 7 .
The stock market, although growing rapidly in 2006, is still small. The total market capitalization of 54 companies listed on the Ho Chi Minh City Stock Exchange as of November 16, 2006 reached VND58,562 billion, equivalent to USD3.64 billion or nearly 7% of GDP in 2005; if fund certificates are included, the total market capitalization reached VND60,522.7 billion, equivalent to USD3.77 billion or 7.2% of GDP in 2005. At the same time, the total value of listed bonds only reached about 6.9% of GDP in 2005, most of which were government and local government bonds (accounting for about 97%) 8 . Very few corporate bonds were issued. The stock market has not yet been a "barometer" of the economy and an important capital mobilization channel for Vietnamese enterprises.
The basic model of Vietnam's financial market is bank-based or bank dominated financial market, while the credit market contains many problems such as:
(1) The level of market accumulation and segmentation is still high. State-owned commercial banks (SCBs) currently account for nearly 80% of the market share of deposit mobilization and credit of the entire banking system. The traditional customer group of SCBs is State-owned enterprises (SOEs). Joint-stock commercial banks mainly focus on the target group of SOEs.
7 Dr. Vo Tri Thanh, Head of the Integration Research Department - Central Institute for Economic Management, presented the paper Vietnam's financial market: Current situation and impact of Vietnam's accession to the WTO.
8 Exchange Research, Panorama of the stock market, (January 8, 2007 16:18), http://www.mof.gov.vn/Default.aspx?tabid=612&ItemID=39818
Small and medium enterprises. The customer group of joint venture banks and foreign bank branches is the foreign-invested enterprises sector. Credit by sector also reflects the segmentation of the credit market, especially for State-owned commercial banks, although at a decreasing level.
(2) Credit risks, especially bad debt, still exist. The ratio of overdue debt to total outstanding debt of the commercial banking system has been announced to have decreased from 13% in 2000 to 3.4% in 2005 9 . However, if based on the international classification of debt, the bad debt ratio of the commercial banking system may be many times larger than the announced figure. Moreover, the risk of further overdue debt is quite high because many investment projects have not been strictly tested for efficiency and feasibility, while the reform of large state-owned enterprises has only really been implemented since 2005.
(3) The issue of “double mismatch” is also worrying. With the proportion of non-term and short-term mobilized capital still accounting for about 75%, the risk of mismatch in the term structure in the balance sheet of the commercial banking system is relatively large. This risk may increase in the context that commercial banks can use up to 25-30% of total short-term mobilized capital for medium and long-term lending. Although the mismatch in currency structure has decreased in the past two or three years, the level is still quite large and very sensitive to fluctuations in exchange rates and interest rates, especially in a highly dollarized environment.
(4) Credit risk may also increase because the income of commercial banks is mainly based on the difference between deposit interest rates and lending interest rates, although many types of banking services have developed in the past 3-4 years. Most loans are secured by real estate,
9 Dr. Phan Minh Ngoc, Kyushu University, Japan, Bad debt has not been handled from the root? Vietnam Economic Times, No. 50 - 2006, published on December 10, 2006.
while the real estate market fluctuates strongly. Although the proportion of securities mortgage loans is not large, it is still worrying when the capacity of individual investors is still low and the stock market still has many potential factors causing large fluctuations in prices.
Meanwhile, the capacity for bank supervision and management is still limited. Supervision has not met the requirements. The remote supervision process is still inadequate in synthesizing, collecting and processing information, especially in the context of accounting and auditing standards not being applied widely and consistently. Credit supervision has not covered all financial institutions related to credit activities due to the lack of close coordination between State management agencies and because the current financial system management model is essentially financial institution management. Management regulations according to international standards such as risk management, asset and liability management, internal audit, etc. have just been applied, so they are not really effective and efficient. In general, the level of internal management of banks has not met international standards such as CAMEL and BASEL.
The stock market still has few important financial institutions such as pension funds and mutual funds. Credit rating companies have appeared but their operations are not really professional and have not been recognized by the world. The underwriters are mainly state-owned commercial banks. Securities companies have not played an important market-making role in the market, only underwriting government bonds. Individual investors are generally unprofessional; investment behavior is often short-term, "herd-like", causing strong price fluctuations and reducing market reliability, especially in the context of low market transparency.