The Third Financial Sector Programme Loan will comprise two sub-programmes, the first of which will be supported by a US $75 million loan. The financial sector development and reform agenda of the entire programme is structured around four components – enhanced market liquidity by lowering of transaction costs; an improved institutional framework for securities issuance; stronger investor and consumer protection; and improved regional co-operation in securities market regulation.

After 30 months, the ADB will evaluate the first part of the programme before authorising continued funding.

The programme is expected to increase the capital markets’ share of domestic investment financing, make resource allocation more efficient and the macroeconomic environment more resilient to external shocks, Ayumi Konishi, ADB’s Country Director for Vietnam said in the press release, adding that the programme is also expected to support government efforts to promote greater regional co-operation by cultivating synergies with regulators of other securities markets in the region.

Over the past decade, the ADB has actively supported financial sector reforms in Vietnam through two programme loans in 1996 and 2002. The First Financial Sector Programme Loan created the legal and regulatory basis for commercial banking while promoting the development of more diverse institutions, instruments and markets. The Second Financial Sector Programme Loan strengthened alternative channels for market-based financial intermediation.

While Vietnam’s domestic savings rates are high and are likely to continue to improve, and foreign direct investment into the economy is increasing, the ability to sustain economic growth will require increased financial intermediation and improved efficiency.

Well-developed capital markets will provide the government and the private sector with access to medium- and long-term funds that should support a wider variety of projects to promote economic expansion. Diversified capital markets will also provide competition to the banking sector, encouraging banks to improve their efficiency. Debt market development also should provide a benchmark yield curve that can help price other, riskier assets and contribute to the development of markets for such assets.