The State Bank of Vietnam (SBV) plans to reduce excess liquidity in the financial markets by issuing bonds in a move to curb inflationary pressure.
Nguyen Dong Tien, SBV deputy governor, said on August 13 that the central bank plans to continue keeping liquidity in check to rein in inflation, which accelerated to 8.39% year-on-year in July.
His statements came during a press briefing held by Government bodies to announce measures to keep inflation below 8.5% this year. A major cause of rising prices, said Tien, was foreign capital inflows, which the central bank has been forced to eat up in an effort to control the dong exchange rate and increase capital reserves.
“We face a historic problem in the SBV’s monetary management system: foreign capital inflows are too much. We, on several days, purchased up to US $500-600 million daily, while the total amount of foreign capital purchased for the entirety of last year was only US $4 billion,” said Tien.
Capital inflows have been fuelled by foreign direct and indirect investments, official development assistance and overseas remittances.
As a result of SBV buying, foreign currency reserves have doubled since the start of the year and are enough to cover imports for 20 weeks, the Government’s 2010 target, said the deputy governor. Unfortunately, it has also led to excess dong in the market, which helped drive domestic price levels higher.
State Bank officials are now considering issuing short term bonds through open market operations to absorb some of the excess cash floating in the market.
Tien said the central bank would spend the rest of the year withdrawing cash previously used to acquire foreign capital. As much as 82% of cash used to purchase foreign capital in January-July has already been withdrawn from the market.
The Ministry of Finance on August 13 also said it would issue bonds worth roughly VND 18 trillion (US $1.1 billion) in the third quarter to reduce liquidity.
The central bank has already taken steps to cut the amount of capital in the market this year. The State Bank in June doubled reserves requirements for commercial banks to 10%, which took out roughly VND 30 trillion from the market.
Source: VNE
Showing posts with label State Bank of Vietnam. Show all posts
Showing posts with label State Bank of Vietnam. Show all posts
Friday, August 17, 2007
Thursday, August 16, 2007
SBV fights inflation, commercial banks’ wings clipped
In order to curb inflation, the central bank has to apply several urgent measures. However, the measures, while helping the central bank hit the mark, have been creating big difficulties for commercial banks.
Since July 30, 2007, the State Bank of Vietnam has three times raised the required compulsory reserve ratio for bank deposits. The ratio for demand deposits and less-than-12-month deposits has been raised from 2% to 5% and then to 10% of total deposits.
Experts say that it is actually necessary to raise the compulsory reserve ratio in the context of the ‘hot credit growth’ in the first six months of the year (15% over the end of 2006). However, they said that the central bank made an unsuitable move when raising the compulsory reserve ratio dramatically by two fold, which is believed will influence the liquidity of the national economy.
According to the Vietnam Industrial and Commercial Bank (Incombank), the higher required compulsory reserve ratio means that the capital cost will be higher, which will force the banks either to lower capital mobilisation interest rates, or raise lending interest rates.
As commercial banks now have to compete with each other fiercely, they will find it hard to demand higher lending interest rates from their traditional clients. If they insist on raising lending interest rates, they will see their market shares narrow or they will have to accept loans with higher risks. In previous years, the demand for capital always increased in the third quarter, and if the scenario repeats this year, banks may have to raise the interest rates on deposits and lending interest rates.
Several commercial banks have asked the central bank to consider re-adjusting the required compulsory ratio. The banks said that the high compulsory ratio had caused big difficulties for their operations, while enterprises said that the decision had weakened their competitiveness, since enterprises still rely on bank loans as their biggest source of working capital.
The State Bank of Vietnam has also announced it will tighten loans for consumer, real estate projects and securities investments.
However, experts have warned that if the central bank tries to keep a rein on loaning to real estate investors, it will freeze the real estate market for longer, which would hinder the synchronous development of key markets in Vietnam.
In fact, loans funding consumer projects remain modest, accounting for 5-20% of total outstanding loans of banks; therefore, there is no need to strictly control lending for consumer projects.
If considering investment portfolio and credit quality, one can see that banks should tighten lending to state-owned enterprises instead of lending for consumer or real estate projects. Statistics show that state-owned enterprises have a high ratio of bad debts: the ratio of debts on state capital in these enterprises is 5 on average, and reach 30-35 in some enterprises.
Source: VNE
Since July 30, 2007, the State Bank of Vietnam has three times raised the required compulsory reserve ratio for bank deposits. The ratio for demand deposits and less-than-12-month deposits has been raised from 2% to 5% and then to 10% of total deposits.
Experts say that it is actually necessary to raise the compulsory reserve ratio in the context of the ‘hot credit growth’ in the first six months of the year (15% over the end of 2006). However, they said that the central bank made an unsuitable move when raising the compulsory reserve ratio dramatically by two fold, which is believed will influence the liquidity of the national economy.
According to the Vietnam Industrial and Commercial Bank (Incombank), the higher required compulsory reserve ratio means that the capital cost will be higher, which will force the banks either to lower capital mobilisation interest rates, or raise lending interest rates.
As commercial banks now have to compete with each other fiercely, they will find it hard to demand higher lending interest rates from their traditional clients. If they insist on raising lending interest rates, they will see their market shares narrow or they will have to accept loans with higher risks. In previous years, the demand for capital always increased in the third quarter, and if the scenario repeats this year, banks may have to raise the interest rates on deposits and lending interest rates.
Several commercial banks have asked the central bank to consider re-adjusting the required compulsory ratio. The banks said that the high compulsory ratio had caused big difficulties for their operations, while enterprises said that the decision had weakened their competitiveness, since enterprises still rely on bank loans as their biggest source of working capital.
The State Bank of Vietnam has also announced it will tighten loans for consumer, real estate projects and securities investments.
However, experts have warned that if the central bank tries to keep a rein on loaning to real estate investors, it will freeze the real estate market for longer, which would hinder the synchronous development of key markets in Vietnam.
In fact, loans funding consumer projects remain modest, accounting for 5-20% of total outstanding loans of banks; therefore, there is no need to strictly control lending for consumer projects.
If considering investment portfolio and credit quality, one can see that banks should tighten lending to state-owned enterprises instead of lending for consumer or real estate projects. Statistics show that state-owned enterprises have a high ratio of bad debts: the ratio of debts on state capital in these enterprises is 5 on average, and reach 30-35 in some enterprises.
Source: VNE
Monday, August 13, 2007
Challenges await new State Bank governor
A lot of works and challenges are awaiting Mr Nguyen Van Giau, who has taken office as the new State Bank of Vietnam governor.
Vietnam’s banking system is welcoming the new leader, who is expected to carry out reform so that the banking system, the heart of the national economy, can have a stable and healthy rhythm. Mr Giau will have to deal with a lot of problems in his term as governor of the central bank.
The first task is to curb the inflation. Prices are escalating again after a long time of being restrained, partially because of the cost push and demand pull.
In the first seven months of the year, the inflation rate climbed to 6.19%, which foreshadows that the inflation rate for 2007 will not be less than 8%, threatening to push the CPI growth rate in 2007 to a record height in the last five years.
The most noteworthy thing is that the inflation rate keeps high when the excess of imports over exports remains high ($5.45bil, or 21% of total export turnover in the first 7 months of the year), which shows that the price imbalance cannot be settled by the excess of imports.
The exchange rate of the local currency, VND, against the greenback and other hard foreign currencies also needs to be set based on a suitable policy which aims to encourage exports, while it must not become a factor leading to high inflation.
In the current situation, when foreign portfolio investment is increasing sharply, the plan to make the local currency into a convertible currency needs thorough consideration. A convertible VND which revaluates precariously is not a good sign. This may foretell possible financial fluctuations (on the stock market), or monetary fluctuations (reduction in national foreign currency reserve), and foreign trade (reduction in exports) as well.
However, the short-term problems can be settled if suitable solutions can be found, and the existing problems can be tackled fundamentally. First of all, Vietnam needs a central bank which operates in the true sense of the word.
In fact, international institutions including the International Monetary Fund (IMF) and the World Bank (WB) all have suggested a more active role of the State Bank of Vietnam in building up and regulating the monetary policy, and taking responsibility for the implementation of the monetary policy, aiming to fulfill the economic targets set by the National Assembly and the government.
A healthy competitive business environment, an equal playing field is the thing commercial banks need, because this is the core factor for the development of the domestic banking system. It is necessary to have a new model for the central bank, and it is necessary to have a new legal framework for the new model. Amending the State Bank Law and Credit Institution Law should be the priority works in the action programme of the new governor.
Supervision and inspection over companies operating in the fields of securities, banking and insurance will be a big problem to deal with. To date, this work has been undertaken by three state management bodies. Experts have asked for the establishment of an organ which can gather the strength and power of the three bodies and take responsibility for the supervision and inspection work.
If the proposal is accepted, the central bank will escape from this work, thus having more time to focus on the monetary policy. This may be an important decision that the governor will consider in his term.
Returning to monetary issues, the new governor will have to deal with the so-called “cash economy”. It has taken a lot of money and time to deal with the problem, but no considerable improvement has been made.
Commercial banks nowadays are trying to expand their ATM networks, but the network only can show its effectiveness in a non-cash economy. In fact, Vietnamese people even use dollars and gold to make payments for their big transactions. The payment in cash makes the expenses of the national economy increasingly high. An economist said that Vietnam’s cash economy had created a barrier to the absorbability of foreign investment flows.
Credit quality will also be one of the pressing issues for the coming time. This will depend on the professionalism of banks, good risk management process, good operation of enterprises and suitable policies.
Source: VNE
Vietnam’s banking system is welcoming the new leader, who is expected to carry out reform so that the banking system, the heart of the national economy, can have a stable and healthy rhythm. Mr Giau will have to deal with a lot of problems in his term as governor of the central bank.
The first task is to curb the inflation. Prices are escalating again after a long time of being restrained, partially because of the cost push and demand pull.
In the first seven months of the year, the inflation rate climbed to 6.19%, which foreshadows that the inflation rate for 2007 will not be less than 8%, threatening to push the CPI growth rate in 2007 to a record height in the last five years.
The most noteworthy thing is that the inflation rate keeps high when the excess of imports over exports remains high ($5.45bil, or 21% of total export turnover in the first 7 months of the year), which shows that the price imbalance cannot be settled by the excess of imports.
The exchange rate of the local currency, VND, against the greenback and other hard foreign currencies also needs to be set based on a suitable policy which aims to encourage exports, while it must not become a factor leading to high inflation.
In the current situation, when foreign portfolio investment is increasing sharply, the plan to make the local currency into a convertible currency needs thorough consideration. A convertible VND which revaluates precariously is not a good sign. This may foretell possible financial fluctuations (on the stock market), or monetary fluctuations (reduction in national foreign currency reserve), and foreign trade (reduction in exports) as well.
However, the short-term problems can be settled if suitable solutions can be found, and the existing problems can be tackled fundamentally. First of all, Vietnam needs a central bank which operates in the true sense of the word.
In fact, international institutions including the International Monetary Fund (IMF) and the World Bank (WB) all have suggested a more active role of the State Bank of Vietnam in building up and regulating the monetary policy, and taking responsibility for the implementation of the monetary policy, aiming to fulfill the economic targets set by the National Assembly and the government.
A healthy competitive business environment, an equal playing field is the thing commercial banks need, because this is the core factor for the development of the domestic banking system. It is necessary to have a new model for the central bank, and it is necessary to have a new legal framework for the new model. Amending the State Bank Law and Credit Institution Law should be the priority works in the action programme of the new governor.
Supervision and inspection over companies operating in the fields of securities, banking and insurance will be a big problem to deal with. To date, this work has been undertaken by three state management bodies. Experts have asked for the establishment of an organ which can gather the strength and power of the three bodies and take responsibility for the supervision and inspection work.
If the proposal is accepted, the central bank will escape from this work, thus having more time to focus on the monetary policy. This may be an important decision that the governor will consider in his term.
Returning to monetary issues, the new governor will have to deal with the so-called “cash economy”. It has taken a lot of money and time to deal with the problem, but no considerable improvement has been made.
Commercial banks nowadays are trying to expand their ATM networks, but the network only can show its effectiveness in a non-cash economy. In fact, Vietnamese people even use dollars and gold to make payments for their big transactions. The payment in cash makes the expenses of the national economy increasingly high. An economist said that Vietnam’s cash economy had created a barrier to the absorbability of foreign investment flows.
Credit quality will also be one of the pressing issues for the coming time. This will depend on the professionalism of banks, good risk management process, good operation of enterprises and suitable policies.
Source: VNE
Monday, July 16, 2007
Banks get VND1tril in chartered capital ahead of schedule
It is very likely that joint stock banks will fulfill the plan to raise the chartered capital to VND1tril before the end of 2008.
The State Bank of Vietnam has inspected the implementation of the plan on raising chartered capital to meet the regulation on required minimum legal capital of VND1tril ($62.5mil) by the end of 2008.
Several banks have completed the raising of chartered capital to VND1tril, the level required for the deadline of the end of 2008. Other banks are moving ahead with their plan to raise chartered capital and they are likely to fulfill the plan by the end of 2007, ahead of schedule.
According to the central bank, by May 30, 2007, 12 joint stock banks had had the chartered capital exceeding VND1tril, while 22 other banks still had the capital below VND1tril. None of the joint venture banks could reach the required VND1tril level, while 33 foreign bank branches had more than $15mil in capital as required on bank branches, and two other had the capital below the level.
The central bank said that the joint stock banks that have not raised enough capital to meet the required level yet, all plan to raise capital within 2007.
Under the Decree 141, the minimum legal capital required on state owned banks is VND3tril ($187.5mil), joint stock banks VND1tril ($62.5mil), foreign bank branches ($15mil), the banks for social policies VND5tril ($312.5mil), investment banks VND3tril ($187.5mil), development banks VND5tril ($312.5mil), cooperation bank VND1tril.
The banks and non-bank credit institutions, if they cannot meet the requirements on minimum legal capital, will have to be either merged into other banks, or have their licenses revoked.
Source: VNE
The State Bank of Vietnam has inspected the implementation of the plan on raising chartered capital to meet the regulation on required minimum legal capital of VND1tril ($62.5mil) by the end of 2008.
Several banks have completed the raising of chartered capital to VND1tril, the level required for the deadline of the end of 2008. Other banks are moving ahead with their plan to raise chartered capital and they are likely to fulfill the plan by the end of 2007, ahead of schedule.
According to the central bank, by May 30, 2007, 12 joint stock banks had had the chartered capital exceeding VND1tril, while 22 other banks still had the capital below VND1tril. None of the joint venture banks could reach the required VND1tril level, while 33 foreign bank branches had more than $15mil in capital as required on bank branches, and two other had the capital below the level.
The central bank said that the joint stock banks that have not raised enough capital to meet the required level yet, all plan to raise capital within 2007.
Under the Decree 141, the minimum legal capital required on state owned banks is VND3tril ($187.5mil), joint stock banks VND1tril ($62.5mil), foreign bank branches ($15mil), the banks for social policies VND5tril ($312.5mil), investment banks VND3tril ($187.5mil), development banks VND5tril ($312.5mil), cooperation bank VND1tril.
The banks and non-bank credit institutions, if they cannot meet the requirements on minimum legal capital, will have to be either merged into other banks, or have their licenses revoked.
Source: VNE
How to control manipulation of the securities market?
The Securities Market Supervision Board aims to monitor all market fluctuations to keep the securities market purring along while controlling acts of manipulation.
The State Securities Commission (SSC) has submitted the Government a project to establish a Securities Market Supervision Board, which will closely work with the securities trading centres to set up a uniform continuous supervision system.
Supervisory results from the board will provide an important foundation for inspectors to handle violations of the securities market. SCC Vice Chairman Nguyen Doan Hung talks about this issue.
How have the securities market’s activities been supervised?
The supervision process occurs on three different levels: Firstly supervising areas related to the SSC, secondly supervising the market’s operations at the stock exchanges and securities trading centres and thirdly, supervising securities companies and funds. The SSC currently focuses on monitoring securities companies, fund management companies and organisations licensed by the SCC.
The SSC is managing the issuance of securities by public companies, which has been approved by the SSC.
What is the most important task of the Securities Market Supervision Board and how will it impact on the securities market?
The board will monitor all fluctuations on the market to ensure its table operation. However, there is a difference between inspection and supervision. Inspection is conducted by a functional board. For instance, securities and fund management companies are under the supervision of the business management board. When signs of violation are detected among these companies, they will be reported to the securities inspection board to consider and deal with under punitive laws. However, supervision and analysis of transactions on the securities market in Vietnam remains weak while many other countries can use a standard information and technology (IT) supervision system to find out violations of transaction regulations. We are trying our best to build a modern IT system to raise the SSC’s supervisory efficiency.
How about the exercise of supervision at the stock exchanges and securities trading centres in Hanoi and Ho Chi Minh City?
Securities companies are members of the stock exchanges and securities trading centres. The stock exchanges and securities centres have specific regulations to supervise transactions made by their members. If any unusual transaction is discovered, all members of securities companies will be notified. If it is a serious violation, the case will be moved to the SSC for consideration. In addition, the securities custodies also supervise securities trading activities.
People say that the SSC has not controlled the influx of foreign investment in the securities market. What is your idea opinion?
Regarding the management of foreign currencies, the Government has assigned the State Bank of Vietnam (SBV) and the SBV’s Department of Foreign Currency Management in particularly to supervise the flows of direct and indirect foreign investment into Vietnam and out of the country.
The SBV has strict supervision regulations. For example, investors must open an account at the SBV so that the bank can monitor the account and regulate the country’s monetary policy and State budget balance.
For the SSC, the commission is interested in foreign investment funds, as they can be set up quickly with a large capitalisation. Under the law on securities and new regulations, the SSC will be in charge of supervising the funds. The regulation stipulates that foreign investment funds must report to the SSC on the establishment of the fund, the origin, the capital source of the fund and investment plans in Vietnam. We hope that the law and new regulations will help monitor the effectiveness of direct and indirect foreign investments in Vietnam.
source: VNE
The State Securities Commission (SSC) has submitted the Government a project to establish a Securities Market Supervision Board, which will closely work with the securities trading centres to set up a uniform continuous supervision system.
Supervisory results from the board will provide an important foundation for inspectors to handle violations of the securities market. SCC Vice Chairman Nguyen Doan Hung talks about this issue.
How have the securities market’s activities been supervised?
The supervision process occurs on three different levels: Firstly supervising areas related to the SSC, secondly supervising the market’s operations at the stock exchanges and securities trading centres and thirdly, supervising securities companies and funds. The SSC currently focuses on monitoring securities companies, fund management companies and organisations licensed by the SCC.
The SSC is managing the issuance of securities by public companies, which has been approved by the SSC.
What is the most important task of the Securities Market Supervision Board and how will it impact on the securities market?
The board will monitor all fluctuations on the market to ensure its table operation. However, there is a difference between inspection and supervision. Inspection is conducted by a functional board. For instance, securities and fund management companies are under the supervision of the business management board. When signs of violation are detected among these companies, they will be reported to the securities inspection board to consider and deal with under punitive laws. However, supervision and analysis of transactions on the securities market in Vietnam remains weak while many other countries can use a standard information and technology (IT) supervision system to find out violations of transaction regulations. We are trying our best to build a modern IT system to raise the SSC’s supervisory efficiency.
How about the exercise of supervision at the stock exchanges and securities trading centres in Hanoi and Ho Chi Minh City?
Securities companies are members of the stock exchanges and securities trading centres. The stock exchanges and securities centres have specific regulations to supervise transactions made by their members. If any unusual transaction is discovered, all members of securities companies will be notified. If it is a serious violation, the case will be moved to the SSC for consideration. In addition, the securities custodies also supervise securities trading activities.
People say that the SSC has not controlled the influx of foreign investment in the securities market. What is your idea opinion?
Regarding the management of foreign currencies, the Government has assigned the State Bank of Vietnam (SBV) and the SBV’s Department of Foreign Currency Management in particularly to supervise the flows of direct and indirect foreign investment into Vietnam and out of the country.
The SBV has strict supervision regulations. For example, investors must open an account at the SBV so that the bank can monitor the account and regulate the country’s monetary policy and State budget balance.
For the SSC, the commission is interested in foreign investment funds, as they can be set up quickly with a large capitalisation. Under the law on securities and new regulations, the SSC will be in charge of supervising the funds. The regulation stipulates that foreign investment funds must report to the SSC on the establishment of the fund, the origin, the capital source of the fund and investment plans in Vietnam. We hope that the law and new regulations will help monitor the effectiveness of direct and indirect foreign investments in Vietnam.
source: VNE
Monday, July 09, 2007
New rules aim to increase convertibility of dong
Prime Minister Nguyen Tan Dung last week approved a State Bank of Viet Nam proposal to enhance the convertibility of the dong and curb the dollarisation of the market.
By 2010, the central bank hopes to completely liberalise the foreign exchange market and have the dong dominate import-export transactions.
The proposal will also see capital transactions partly liberalised, whereby the dong will be able to act as the primary currency in borrowing and debt payment transactions.
Authorities also plan to improve enforcement of forex regulations in an effort to reduce and finally remove the illegal use of foreign currencies in the market.
Authorities will try to bring complete control of forex trading under the control of the banks and other financial institutions, and remove monetary policies that could encourage the dollarisation of the market.
The central bank hopes to make the dong more easily convertible while trying to increase foreign reserves. The Ministry of Finance will also apply suitable measures to develop the dong capital market.
The Ministry of Trade will work with the SBV to encourage the use of dong in financial transaction, particularly in trading essential goods.
The Ministry of Planning and Investment will also encourage foreign investors to use the dong in making investments.
Source: VNA
By 2010, the central bank hopes to completely liberalise the foreign exchange market and have the dong dominate import-export transactions.
The proposal will also see capital transactions partly liberalised, whereby the dong will be able to act as the primary currency in borrowing and debt payment transactions.
Authorities also plan to improve enforcement of forex regulations in an effort to reduce and finally remove the illegal use of foreign currencies in the market.
Authorities will try to bring complete control of forex trading under the control of the banks and other financial institutions, and remove monetary policies that could encourage the dollarisation of the market.
The central bank hopes to make the dong more easily convertible while trying to increase foreign reserves. The Ministry of Finance will also apply suitable measures to develop the dong capital market.
The Ministry of Trade will work with the SBV to encourage the use of dong in financial transaction, particularly in trading essential goods.
The Ministry of Planning and Investment will also encourage foreign investors to use the dong in making investments.
Source: VNA
Friday, July 06, 2007
Decade after crisis, VN has lessons to learn
by Dr Truong Van Phuoc, Central Bank Department Director, State Bank of Viet Nam
Prevention is better than a cure. It has been ten years since the Asian financial crisis, yet the lessons are still entirely meaningful for Viet Nam in the context of integration. Viet Nam needs to implement prudent and appropriate policies and to preclude a repeat of such a crisis.
The Asian financial crisis began in Thailand in the summer of 1997. The crisis commenced with the depreciation of the Thai baht on July 2 and then spread to other East Asian countries. The pains from the crisis have never been fully eliminated. For instance, the Asian investment ratio is still lower than the levels achieved in 1996. Profits have boomed, yet investment has never fully recovered. Looking back at the crisis will bring about opportunities to evaluate and help Viet Nam avoid economic threats.
The Asian financial crisis triggered a series of events most widely-known as monetary crises which impacted countries with governments that lacked the economic and political capacity to prevent their currencies from depreciating. Causes of the crisis can be classified into three categories.
Firstly, premature liberalisation of capital accounts: High growth rates in East Asian countries were financed by huge capital inflows. These inflows created enormous pressures on overvalued currencies. Together with the fact that increasing current account deficits were only financed by capital account surpluses, the reversal of investment flows resulted in serious consequences. The only escape for these countries then was to float their foreign exchange rates.
Secondly, maturity and currency mismatches resulting from huge short term foreign borrowing from commercial banks and enterprises invested in inefficient long term projects. As the confidence of foreign investors eroded, these governments had to use their already thin foreign exchange reserves to repay debts. Eventually as the governments ran out of foreign reserves to defend their currencies, exchange rates were left floating, resulting in a banking crisis and finally a monetary crisis.
Thirdly, financial systems in Asian countries were generally fragile. The policy of offering high interest rates to attract foreign investment while stabilising the balance of payments threatened to destabilise their banking systems. To survive the bank crisis, interest rates had to be reduced. In fact, these countries did cut their rates and accepted free speculation on their currencies.
Viet Nam was mostly unaffected by the 1997 crisis except for delays in foreign invested projects. The reason is that Viet Nam had only just launched its equity market and still did not permit foreign indirect investments. The control over Government and private foreign debts was strictly implemented and the current account deficit was not so large. At the time of the crisis, Viet Nam was applying an exchange rate policy with a thin trading band, undervaluing the nominal value of the Vietnamese dong by around 23 per cent against the US dollar from 1997 to 1998. This helped adjust the Vietnamese dong to the exchange rates of other commercial counterparts in the region.
A decade later, countries that were hit by the crisis have undergone many reforms focusing on eliminating imbalances, cleaning up financial institutions’ balance sheets, building up a financial system to better support economic growth and creating stability through legal and regulatory reform, which are prudent in liberalising the capital account, enhancing the quality of corporate governance in financial institutions, etc.
Viet Nam has been trying its best to integrate into the global economy and has undertaken reforms to catch up with world economic developments. Lessons can be drawn from the Asian crisis.
Firstly, financial liberalisation needs to be progressive and prudent steps should be taken to gradually loosen controls over capital transactions. The Vietnamese equity market has undergone amazing development during the last two years. Foreign indirect investment flows into Viet Nam are currently estimated at more than 10 per cent of GDP. For the sustainable development of our capital market and to build confidence among foreign investors, there is a need to differentiate between long and short term investors, and provide incentives to long term investors.
Secondly, Viet Nam should formulate a more flexible exchange rate policy which pegs the Vietnamese dong to a basket of currencies. This will assure the effective intervention of the State Bank of Viet Nam in preventing the Vietnamese dong from appreciation.
This not only helps promote exports but also heads off accumulation in foreign exchange rate risks.
In addition, foreign exchange derivatives such as swaps, forwards and options should be made available for commercial banks to hedge against exchange rate risks.
Foreign reserves have experienced a ten-fold increase since 1997. From 2000 to now, reserves as measured by months of imports have doubled and the pace of reserve accumulation is only lower than that of China, Russia, Brazil and Algeria among the 15 countries in a 2007 IIF Data survey.
To enhance the capacity of the State Bank of Viet Nam in precluding a crisis, it is necessary to continuously accumulate more foreign exchange reserves.
Thirdly, corporate governance over companies and financial institutions should be improved. The quality of governance is important for investment and sustainable growth. Maturity and currency mismatches need to be transparent and controlled jointly by maintaining a healthy reliance on companies and financial institutions on debt financing to head off capital structure mismatch risks. Therefore, comprehensive corporate internal controls and supervisory standards from regulators should be in place to ensure companies and financial institutions maintain healthy balance sheets and become more resilient in the face of a crisis.
Finally, an early warning system based on analysing macro economic variables should be made available since no one can tell where and when "financial tsunamis" can happen again, especially in the era of extremely high global capital mobility.
Source: VNS
Monday, July 02, 2007
Foreign currency reserves at record high
Vietnam has seen record increases in foreign currency reserves in the first half of 2007, due to rising indirect investment in the stock market and a stabilised domestic exchange rate.
State Bank governor Le Duc Thuy said the increases in foreign currency reserves had tripled those of 2006 in the first five months of this year.
“The central bank of Vietnam will continue to invest in foreign currencies in the next few months to meet the target level equal to 20 weeks of imports,” said Thuy.
According to the IMF, Vietnam’s total foreign currency reserves were equal to 12 weeks of imports at the end of last year, reaching the minimum international standard for foreign currency reserves.
The reserve increase helps stabilise the exchange rate between the Vietnamese dong and the US dollar with a fluctuation rate of around one per cent by the end of this year. While the Vietnamese dong fell against the US dollar at the end of 2006 and in the beginning of this year, the interbank nominal effective exchange rate was higher than the real exchange rate for the first time in Vietnam’s history due to the surplus of foreign currency supply.
“Recently, the increase in the national forex reserve has stabilised the exchange rate, narrowing the gap between the interbank nominal effective exchange rate and the rate on the market,” Thuy added.
In January, the State Bank doubled the trading band for the dong-dollar rate. In the first two months of this year, the dong appreciated by about 0.3 per cent against the dollar after declining around 0.9 per cent in 2006.
“One reason for the surplus stems from indirect foreign investment capital which is expected to keep increasing in the last half of this year,” said Thuy.
According to the World Bank’s assessment of Vietnam’s economic development released in June, rising capital inflows complicated the implementation of monetary policy. Vietnam was confronted with what is called an ‘impossible trinity’: simultaneously maintaining a fixed or nearly fixed exchange rate, independent monetary policy and an open capital account.
In addition, increasing capital inflows have put pressure on the exchange rate to appreciate. However, the authorities have been unwilling to allow a greater appreciation as it may harm the competitiveness of exports and slow down growth.Officials have thus intervened in the market by purchasing foreign currency.
The dong has, as a result, returned to a slow depreciation. This type of intervention in the foreign exchange market has resulted in a build-up of reserves.
Source: VNE
State Bank governor Le Duc Thuy said the increases in foreign currency reserves had tripled those of 2006 in the first five months of this year.
“The central bank of Vietnam will continue to invest in foreign currencies in the next few months to meet the target level equal to 20 weeks of imports,” said Thuy.
According to the IMF, Vietnam’s total foreign currency reserves were equal to 12 weeks of imports at the end of last year, reaching the minimum international standard for foreign currency reserves.
The reserve increase helps stabilise the exchange rate between the Vietnamese dong and the US dollar with a fluctuation rate of around one per cent by the end of this year. While the Vietnamese dong fell against the US dollar at the end of 2006 and in the beginning of this year, the interbank nominal effective exchange rate was higher than the real exchange rate for the first time in Vietnam’s history due to the surplus of foreign currency supply.
“Recently, the increase in the national forex reserve has stabilised the exchange rate, narrowing the gap between the interbank nominal effective exchange rate and the rate on the market,” Thuy added.
In January, the State Bank doubled the trading band for the dong-dollar rate. In the first two months of this year, the dong appreciated by about 0.3 per cent against the dollar after declining around 0.9 per cent in 2006.
“One reason for the surplus stems from indirect foreign investment capital which is expected to keep increasing in the last half of this year,” said Thuy.
According to the World Bank’s assessment of Vietnam’s economic development released in June, rising capital inflows complicated the implementation of monetary policy. Vietnam was confronted with what is called an ‘impossible trinity’: simultaneously maintaining a fixed or nearly fixed exchange rate, independent monetary policy and an open capital account.
In addition, increasing capital inflows have put pressure on the exchange rate to appreciate. However, the authorities have been unwilling to allow a greater appreciation as it may harm the competitiveness of exports and slow down growth.Officials have thus intervened in the market by purchasing foreign currency.
The dong has, as a result, returned to a slow depreciation. This type of intervention in the foreign exchange market has resulted in a build-up of reserves.
Source: VNE
Friday, June 29, 2007
Vietnam limits stock loans to 3 pct of banks' debt
Vietnam's central bank has ordered banks to limit lending to stock investors to 3 percent of their total outstanding debt, as part of measures to stabilise the fledgling but fast-expanding stock markets.
Commercial banks must reduce loans to stock investors to a maximum of 3 percent of total outstanding debt by Dec. 31 this year, the Vietnam News Agency on Friday quoted Nguyen Danh Trong, deputy director of the bank's monetary policy department, as saying.
Banks which are already under the 3 percent limit must implement the cap from July 1, the central bank ruled.
"Banks should review the risk associated with stock lending before making the decision to lend," Trong was quoted as saying by Lao Dong newspaper.
Trong said lending to stock investors by the overall banking system now stood at an average of 2.5 percent to total outstanding debt and there were about 12 banks which had exceeded the limit to about 7 percent.
"The big risk in stock investment is the loss of liquidity," Trong added.
The central bank said in its first-half review of the stock markets that total market capitalisation had jumped about 43 percent to $20 billion at the end of June from $14 billion recorded at the end of 2006.
The main Ho Chi Minh Stock Exchange index grew a massive 144.5 percent in 2006 and about 36 percent this year with a market capitalisation of about $14 billion.
Source: Reuters
Commercial banks must reduce loans to stock investors to a maximum of 3 percent of total outstanding debt by Dec. 31 this year, the Vietnam News Agency on Friday quoted Nguyen Danh Trong, deputy director of the bank's monetary policy department, as saying.
Banks which are already under the 3 percent limit must implement the cap from July 1, the central bank ruled.
"Banks should review the risk associated with stock lending before making the decision to lend," Trong was quoted as saying by Lao Dong newspaper.
Trong said lending to stock investors by the overall banking system now stood at an average of 2.5 percent to total outstanding debt and there were about 12 banks which had exceeded the limit to about 7 percent.
"The big risk in stock investment is the loss of liquidity," Trong added.
The central bank said in its first-half review of the stock markets that total market capitalisation had jumped about 43 percent to $20 billion at the end of June from $14 billion recorded at the end of 2006.
The main Ho Chi Minh Stock Exchange index grew a massive 144.5 percent in 2006 and about 36 percent this year with a market capitalisation of about $14 billion.
Source: Reuters
Loaning for securities investment: 2.5%, 7% or 40%?
The leader of the State Bank of Vietnam’s Monetary Policy Department this morning revealed figures on loans for securities investments of a few banks, which may startle everyone, because they amount to 40-50% of the bank’s total outstanding loans.
Experts and investors sighed relief when the State Bank of Vietnam announced a low percentage of loans for securities investments, at 2.5% of total outstanding loans on average, or 0.1% lower than earlier this year.
In fact, only state owned banks and foreign bank branches have low ratios of loans funding securities investments. The ratio is much higher, at 7%, for many joint stock banks.
Twelve joint stock banks have been found as having a percentage of loans funding securities investments higher than the allowed level at 3% of total outstanding loans.
The figures have been made public by the State Bank of Vietnam. However, it did not release other figures, which may surprise everyone. A leader from the Monetary Policy Department this morning revealed that the ratios in a few banks were 40-50% of total outstanding loans.
The source said that such a high percentage can be seen in very few small banks only, but it was enough to ring the alarm bell over the operation of banks. He said that such a high ratio had never been seen in any kind of loaning so far.
The official has declined to reveal the names of the banks, saying that this was a very ‘sensitive’ problem.
He stressed that it was necessary for the central bank to intervene in this case in order to avoid risks for the banking system as a whole.
Prior to that, investors and bankers voiced protest against the central bank’s decision to limit loaning for securities investments, saying that the central bank was too cautious in this issue, and thus was interfering with banks’ operations.
However, Governor of the State Bank Le Duc Thuy insisted on tightening the loaning for securities investments.
According to Mr Thuy, a world-famous economist, Vietnam is the only country in the world that allows banks to provide loans to fund securities investment. Other countries never allow their banks to get involved in funding securities investment deals.
“I know some banks have percentages of loans for securities investments far exceeding the allowed 3% level. They think risks will not come, but I have the responsibility to stop them, because if risks occur, the whole banking system will shake violently,” Mr Thuy said.
Source: VNE
Experts and investors sighed relief when the State Bank of Vietnam announced a low percentage of loans for securities investments, at 2.5% of total outstanding loans on average, or 0.1% lower than earlier this year.
In fact, only state owned banks and foreign bank branches have low ratios of loans funding securities investments. The ratio is much higher, at 7%, for many joint stock banks.
Twelve joint stock banks have been found as having a percentage of loans funding securities investments higher than the allowed level at 3% of total outstanding loans.
The figures have been made public by the State Bank of Vietnam. However, it did not release other figures, which may surprise everyone. A leader from the Monetary Policy Department this morning revealed that the ratios in a few banks were 40-50% of total outstanding loans.
The source said that such a high percentage can be seen in very few small banks only, but it was enough to ring the alarm bell over the operation of banks. He said that such a high ratio had never been seen in any kind of loaning so far.
The official has declined to reveal the names of the banks, saying that this was a very ‘sensitive’ problem.
He stressed that it was necessary for the central bank to intervene in this case in order to avoid risks for the banking system as a whole.
Prior to that, investors and bankers voiced protest against the central bank’s decision to limit loaning for securities investments, saying that the central bank was too cautious in this issue, and thus was interfering with banks’ operations.
However, Governor of the State Bank Le Duc Thuy insisted on tightening the loaning for securities investments.
According to Mr Thuy, a world-famous economist, Vietnam is the only country in the world that allows banks to provide loans to fund securities investment. Other countries never allow their banks to get involved in funding securities investment deals.
“I know some banks have percentages of loans for securities investments far exceeding the allowed 3% level. They think risks will not come, but I have the responsibility to stop them, because if risks occur, the whole banking system will shake violently,” Mr Thuy said.
Source: VNE
Tuesday, June 26, 2007
Vietnam to weaken dong
Vietnam will engineer a decline in the dong of as much as 1 percent this year to support exports, a Bloomberg news agency’s report Monday quoted Deputy Prime Minister Nguyen Sinh Hung as saying.
Intervention by State Bank of Vietnam, the country’s central bank, has led to a depreciation of about 1 percent in each of the past three years, even as foreign investment drove faster economic growth.
The currency has dropped 0.4 percent this year, while the Indian rupee gained 8.6 percent, the Philippine peso climbed 6.2 percent and the Thai baht rose 2.5 percent.
“We are making the decision to depreciate it a little bit to ensure our exports because there is a good inflow of dollars,” Hung said in an interview Sunday while attending the World Economic Forum in Singapore.
“Our concern is the appreciation of the Vietnam dong.”
HSBC Holdings Plc., Europe's biggest bank by market value, this month said the currency would appreciate as foreign investment inflows increase and policy makers try to stem inflation. A stronger dong would make imports cheaper and cool growth in exports of crude oil, textiles and furniture.
Source: Thanh Nien
Intervention by State Bank of Vietnam, the country’s central bank, has led to a depreciation of about 1 percent in each of the past three years, even as foreign investment drove faster economic growth.
The currency has dropped 0.4 percent this year, while the Indian rupee gained 8.6 percent, the Philippine peso climbed 6.2 percent and the Thai baht rose 2.5 percent.
“We are making the decision to depreciate it a little bit to ensure our exports because there is a good inflow of dollars,” Hung said in an interview Sunday while attending the World Economic Forum in Singapore.
“Our concern is the appreciation of the Vietnam dong.”
HSBC Holdings Plc., Europe's biggest bank by market value, this month said the currency would appreciate as foreign investment inflows increase and policy makers try to stem inflation. A stronger dong would make imports cheaper and cool growth in exports of crude oil, textiles and furniture.
Source: Thanh Nien
Saturday, June 23, 2007
SBV: no concessions on loans for securities investments
Governor of the State Bank of Vietnam (SBV) Le Duc Thuy yesterday affirmed in an interview with the press that SBV would not change its mind on the issue relating to the limitation on securities investment loaning.
Responding to the questions about the revaluation of the dollar in recent days, Mr Thuy asserted that there would be no imbalance in foreign currency supply and demand, and that the VND/US$ exchange rate would fluctuate by 1% at maximum until the end of this year.
At the end of 2006, the VND/US$ exchange rate was low, reflecting the excess of supply over demand, which was rarely seen in previous years. This was because of higher exports (which brought more foreign currencies), and higher investment flow. This is why SBV has to buy foreign currencies: in order to prevent the local currency from further falling, said Mr Thuy.
SBV is now still buying foreign currencies, though the offered volume now is lower than that of the last five months (the central bank has bought $7bil in the last five months). More foreign currencies will continue inflowing in direct and indirect ways, or through overseas remittance. Therefore, Mr Thuy has affirmed that there would not be tightness in foreign currency supply and demand.
“Although the excess of foreign currencies will not be high the VND will still devaluate, but the local currency value decrease will still be within the control of the central bank with the expected fluctuation of 1% at maximum,” Mr Thuy said.
Do you think that SBV has imposed an “administrative order” when deciding that commercial banks’ outstanding loans given to securities investors must not exceed 3% of the banks’ total outstanding ones?
SBV decided to limit loaning for securities investments to follow the Prime Minister’s instructions on controlling the bank capital flow into the stock market.
In fact, the central bank has implemented a series of measures to limit the cash flow from banks into the stock market, but the measures showed little efficiency. Statistics showed that in the first four months of the year, the outstanding loans provided for securities investors amounted to 2.6% of total outstanding loans, and the figure saw just a little decrease by 0.1% in May 2007.
In principle, other central banks never allow commercial banks to get involved in funding securities trading. What will happen if investors, who borrow money from banks, cannot sell shares and get money back for debt payment? You may know that several hundred share items now cannot find customers on the OTC market.
The central bank checked information before making the decision. We found out that only 12 commercial banks had outstanding loans to securities investors at more than 3% of total outstanding loans. The%age is 3% for joint stock banks, while the figure is very low for state owned banks as the banks have big capital. Meanwhile, no foreign bank gets involved in this kind of loaning. As such, the ceiling of 3% should be seen as an ‘acceptable’ figure if considering the current loaning of banks.
How will the central bank deal with the banks which have the outstanding loans to securities investors higher than the allowed level?
We are planning to release a circular, guiding the implementation of the decision on limiting securities investment loaning. We will give them time, so that the banks which have the outstanding loans to securities investors higher than the allowed level can collect debts.
I have to remind you that the decision is applied only for the securities investment deals in the stock market. It will not apply to the programme on supporting staffs in equitised companies in buying stocks of their companies.
I can affirm that the central bank will not make concessions in tightening securities investment loaning.
According to SNV, the foreign currencies remitted to Vietnam in the first six months of 2007 saw an increase of 12% over the same period of last year. There were not big changes in interest rate policies of commercial banks. Vietnam’s foreign currency reserve in 2007 may increase, equivalent to the payment for 20 weeks of imports.
There have been more than 20 banks that have issued 6.2mil payment cards, four card alliances which own more than 3,800 ATMs. The payment of salary and other services are being carried out in HCM City, Hanoi, Hai Phong, Da Nang and some other localities.
Source: VNE
Responding to the questions about the revaluation of the dollar in recent days, Mr Thuy asserted that there would be no imbalance in foreign currency supply and demand, and that the VND/US$ exchange rate would fluctuate by 1% at maximum until the end of this year.
At the end of 2006, the VND/US$ exchange rate was low, reflecting the excess of supply over demand, which was rarely seen in previous years. This was because of higher exports (which brought more foreign currencies), and higher investment flow. This is why SBV has to buy foreign currencies: in order to prevent the local currency from further falling, said Mr Thuy.
SBV is now still buying foreign currencies, though the offered volume now is lower than that of the last five months (the central bank has bought $7bil in the last five months). More foreign currencies will continue inflowing in direct and indirect ways, or through overseas remittance. Therefore, Mr Thuy has affirmed that there would not be tightness in foreign currency supply and demand.
“Although the excess of foreign currencies will not be high the VND will still devaluate, but the local currency value decrease will still be within the control of the central bank with the expected fluctuation of 1% at maximum,” Mr Thuy said.
Do you think that SBV has imposed an “administrative order” when deciding that commercial banks’ outstanding loans given to securities investors must not exceed 3% of the banks’ total outstanding ones?
SBV decided to limit loaning for securities investments to follow the Prime Minister’s instructions on controlling the bank capital flow into the stock market.
In fact, the central bank has implemented a series of measures to limit the cash flow from banks into the stock market, but the measures showed little efficiency. Statistics showed that in the first four months of the year, the outstanding loans provided for securities investors amounted to 2.6% of total outstanding loans, and the figure saw just a little decrease by 0.1% in May 2007.
In principle, other central banks never allow commercial banks to get involved in funding securities trading. What will happen if investors, who borrow money from banks, cannot sell shares and get money back for debt payment? You may know that several hundred share items now cannot find customers on the OTC market.
The central bank checked information before making the decision. We found out that only 12 commercial banks had outstanding loans to securities investors at more than 3% of total outstanding loans. The%age is 3% for joint stock banks, while the figure is very low for state owned banks as the banks have big capital. Meanwhile, no foreign bank gets involved in this kind of loaning. As such, the ceiling of 3% should be seen as an ‘acceptable’ figure if considering the current loaning of banks.
How will the central bank deal with the banks which have the outstanding loans to securities investors higher than the allowed level?
We are planning to release a circular, guiding the implementation of the decision on limiting securities investment loaning. We will give them time, so that the banks which have the outstanding loans to securities investors higher than the allowed level can collect debts.
I have to remind you that the decision is applied only for the securities investment deals in the stock market. It will not apply to the programme on supporting staffs in equitised companies in buying stocks of their companies.
I can affirm that the central bank will not make concessions in tightening securities investment loaning.
According to SNV, the foreign currencies remitted to Vietnam in the first six months of 2007 saw an increase of 12% over the same period of last year. There were not big changes in interest rate policies of commercial banks. Vietnam’s foreign currency reserve in 2007 may increase, equivalent to the payment for 20 weeks of imports.
There have been more than 20 banks that have issued 6.2mil payment cards, four card alliances which own more than 3,800 ATMs. The payment of salary and other services are being carried out in HCM City, Hanoi, Hai Phong, Da Nang and some other localities.
Source: VNE
Monday, June 18, 2007
SBV strives for controlling inflation
In late May 2007, the monetary policy of the State Bank of Vietnam (SBV) seemed to see a turning-point.
By asking commercial banks to increase their compulsory reserve for both the Vietnam dong (from 5% to 10% for deposits of less than 12 months) and foreign currencies (from 8% to 10%), the SBV has officially sent a signal: it will give priority to keeping inflation lower than the economic growth rate.
The consumer price index (CPI) of the first five months increased by 4.3% compared to that of late 2006. The CPI of June 2007 is forecast to increase 0.4%. Thus, the CPI of the first half of the year will be more than 4.7%. Will the CPI of the whole year be less than 8%, lower than the expected growth rate of 8-8.5%? Maintaining the inflation rate of 3.3% for the last six months of the year seems to be a difficult mission.
Before releasing the new regulations on compulsory reserve, SBV Governor Le Duc Thuy told the press that controlling inflation was one of the top missions of the central bank. He stated that this agency realised that it was necessary to take some measures to keep inflation under control.
Those measures had actually been realised regularly but the policy to control inflation was clearer in May.
Firstly, the SBV took a positive step in withdrawing the volume of cash circulating in the market through the operations of the open market. In May only, around VND12,000-VND15,000 billion (US$750 - $937.5 million) was withdrawn from circulation through auctions of quasi-money papers.
Secondly, banks were reminded very frequently about credit control, especially raising the quality of credit.
While the credit growth rate of state-owned commercial banks is less than 20% compared to the same period of last year, the outstanding debt balance of joint stock banks has quickly grown.
Many joint stock banks have boosted loans for stock investment and this has contributed to their credit growth. By warning banks to not give loans for stock investment that exceed 3% of their total outstanding debt balances the SBV has officially fixed the 3% limit for stock loans.
The third measure, which is being performed by the SBV, is flexibly controlling the foreign exchange rate.
Since mid May, the devaluation of the Vietnam dong against the US dollar has gone faster. By June 12, 2007, the US dollar/Vietnam dong exchange rate of the Bank for Foreign Trade of Vietnam (Vietcombank) was equal to the inter-banking exchange rate daily announced by the SBV.
Previously, in late December 2006 and the first quarter of 2007, the exchange rate of banks was always much lower than the daily-announced inter-banking exchange rate. Even in the first quarter of 2007, the Vietnam dong gained higher value (0.3%) compared to the US dollar. However, in the past three weeks, the devaluation of the Vietnam dong against the US dollar has reached 3.5%/year, according to the Hong Kong and Shanghai Banking Corporation (HSBC).
With the above measures, the SBV can completely maintain the devaluation of the Vietnam dong at 1% in 2007 as its goal. Once it can control the exchange rate, inflation control will be more effective.
However, some challenges still exist and the most difficult is the prediction of financial investment flow. It is difficult to know whether foreign investment in stocks from now to the year’s end will suddenly rise.
It is not accidental that the value of the Vietnam dong continuously increased against the US dollar in January 2007, the time foreign investors ‘pumped’ up to US$350 million into the stock market. At that time the forex limits of many banks were always full and they couldn’t change Vietnam dong for US dollars and the SBV had to buy US dollars, increasing the national foreign currency reserve.
Source: VNE
By asking commercial banks to increase their compulsory reserve for both the Vietnam dong (from 5% to 10% for deposits of less than 12 months) and foreign currencies (from 8% to 10%), the SBV has officially sent a signal: it will give priority to keeping inflation lower than the economic growth rate.
The consumer price index (CPI) of the first five months increased by 4.3% compared to that of late 2006. The CPI of June 2007 is forecast to increase 0.4%. Thus, the CPI of the first half of the year will be more than 4.7%. Will the CPI of the whole year be less than 8%, lower than the expected growth rate of 8-8.5%? Maintaining the inflation rate of 3.3% for the last six months of the year seems to be a difficult mission.
Before releasing the new regulations on compulsory reserve, SBV Governor Le Duc Thuy told the press that controlling inflation was one of the top missions of the central bank. He stated that this agency realised that it was necessary to take some measures to keep inflation under control.
Those measures had actually been realised regularly but the policy to control inflation was clearer in May.
Firstly, the SBV took a positive step in withdrawing the volume of cash circulating in the market through the operations of the open market. In May only, around VND12,000-VND15,000 billion (US$750 - $937.5 million) was withdrawn from circulation through auctions of quasi-money papers.
Secondly, banks were reminded very frequently about credit control, especially raising the quality of credit.
While the credit growth rate of state-owned commercial banks is less than 20% compared to the same period of last year, the outstanding debt balance of joint stock banks has quickly grown.
Many joint stock banks have boosted loans for stock investment and this has contributed to their credit growth. By warning banks to not give loans for stock investment that exceed 3% of their total outstanding debt balances the SBV has officially fixed the 3% limit for stock loans.
The third measure, which is being performed by the SBV, is flexibly controlling the foreign exchange rate.
Since mid May, the devaluation of the Vietnam dong against the US dollar has gone faster. By June 12, 2007, the US dollar/Vietnam dong exchange rate of the Bank for Foreign Trade of Vietnam (Vietcombank) was equal to the inter-banking exchange rate daily announced by the SBV.
Previously, in late December 2006 and the first quarter of 2007, the exchange rate of banks was always much lower than the daily-announced inter-banking exchange rate. Even in the first quarter of 2007, the Vietnam dong gained higher value (0.3%) compared to the US dollar. However, in the past three weeks, the devaluation of the Vietnam dong against the US dollar has reached 3.5%/year, according to the Hong Kong and Shanghai Banking Corporation (HSBC).
With the above measures, the SBV can completely maintain the devaluation of the Vietnam dong at 1% in 2007 as its goal. Once it can control the exchange rate, inflation control will be more effective.
However, some challenges still exist and the most difficult is the prediction of financial investment flow. It is difficult to know whether foreign investment in stocks from now to the year’s end will suddenly rise.
It is not accidental that the value of the Vietnam dong continuously increased against the US dollar in January 2007, the time foreign investors ‘pumped’ up to US$350 million into the stock market. At that time the forex limits of many banks were always full and they couldn’t change Vietnam dong for US dollars and the SBV had to buy US dollars, increasing the national foreign currency reserve.
Source: VNE
Friday, June 15, 2007
Central bank sets strict rules for new banks
The State Bank of Vietnam (SBV) is set to slap stringent new conditions on the establishment of commercial joint stock banks following a decision issued on June 7.
Under the Decision No24/2007/QD-NHNN, new banks must have at least VND1 trillion (US$62.5 million) in chartered capital and be able to scale up the figure to VND3 trillion by early 2009.
In addition to a 100-founder proviso, the decision specifies that a new joint stock bank must have at least three member institutions, each with capital valued at a minimum of VND500 billion ($31 million) and each having been profitable for the last three years.
If the founding shareholder in the new venture is a commercial bank, the shareholder must have VND10 trillion ($625 million) in total assets, bad debt of below 2% of outstanding loans and must have been profitable over the last three years.
The decision also states that capital acquired to found a new bank must be owned by shareholders and not be loaned in any form whatsoever.
Each member institution can own a maximum stake of 20% of the bank’s chartered capital, and individual shareholders can hold only 10% at maximum.
A shareholder’s ownership can be raised with the approval of the SBV’s governor.
The founding shareholders must hold a total of 50% of the chartered capital, and are allowed to sell their stakes to others within the founder board five years after the bank’s launch.
Other shareholders are eligible to transfer their stakes in a bank three years after its founding.
The decision also states that foreigners are not allowed to act as founding shareholders in the new banks. They can, however, acquire bank shares after operations have begun.
Apart from the capital requirements, the new decision has set criteria detailing human resources, information technology and business strategy.
The plan for a new bank establishment must apply IT standards to the bank’s operation and the appointment of key management positions.
New bank must define the volume of expected business in years to come, basing estimates on current capital figures.
A SBV official said that about 24 proposals to set up new banks had been submitted to the bank, but none of them have been considered yet.
Kieu Hung Dung, head of SBV’s Banks and Non-bank Credit Institutions Department said the bank would take six months to examine each file.
However banking analysts commented that it was not easy to set up a new commercial bank due to the central bank’s tight rules on capital requirements.
SBV has recently issued a circular guiding the establishment of wholly-foreign owned banks and joint venture banks following the country’s WTO commitment to open up banking sector to all players.
Under its commitment to the WTO, Vietnam began permitting wholly foreign-owned banks on a par with domestic banks in April.
It has so far received at least ten applications for the establishment of foreign-owned banks from foreign financial institutions.
Source: Thanh Nien
Under the Decision No24/2007/QD-NHNN, new banks must have at least VND1 trillion (US$62.5 million) in chartered capital and be able to scale up the figure to VND3 trillion by early 2009.
In addition to a 100-founder proviso, the decision specifies that a new joint stock bank must have at least three member institutions, each with capital valued at a minimum of VND500 billion ($31 million) and each having been profitable for the last three years.
If the founding shareholder in the new venture is a commercial bank, the shareholder must have VND10 trillion ($625 million) in total assets, bad debt of below 2% of outstanding loans and must have been profitable over the last three years.
The decision also states that capital acquired to found a new bank must be owned by shareholders and not be loaned in any form whatsoever.
Each member institution can own a maximum stake of 20% of the bank’s chartered capital, and individual shareholders can hold only 10% at maximum.
A shareholder’s ownership can be raised with the approval of the SBV’s governor.
The founding shareholders must hold a total of 50% of the chartered capital, and are allowed to sell their stakes to others within the founder board five years after the bank’s launch.
Other shareholders are eligible to transfer their stakes in a bank three years after its founding.
The decision also states that foreigners are not allowed to act as founding shareholders in the new banks. They can, however, acquire bank shares after operations have begun.
Apart from the capital requirements, the new decision has set criteria detailing human resources, information technology and business strategy.
The plan for a new bank establishment must apply IT standards to the bank’s operation and the appointment of key management positions.
New bank must define the volume of expected business in years to come, basing estimates on current capital figures.
A SBV official said that about 24 proposals to set up new banks had been submitted to the bank, but none of them have been considered yet.
Kieu Hung Dung, head of SBV’s Banks and Non-bank Credit Institutions Department said the bank would take six months to examine each file.
However banking analysts commented that it was not easy to set up a new commercial bank due to the central bank’s tight rules on capital requirements.
SBV has recently issued a circular guiding the establishment of wholly-foreign owned banks and joint venture banks following the country’s WTO commitment to open up banking sector to all players.
Under its commitment to the WTO, Vietnam began permitting wholly foreign-owned banks on a par with domestic banks in April.
It has so far received at least ten applications for the establishment of foreign-owned banks from foreign financial institutions.
Source: Thanh Nien
Thursday, June 07, 2007
SBV’s decision may draw VND 50 trillion from market
It is estimated that around VND50tril ($3.12bil) could be taken from circulation with the new decision by the State Bank of Vietnam on raising the compulsory VND reserve rate.
Under the new decision, the compulsory reserve rate applied for under-12-month term deposits has been raised from 5% to 10%. The rate for Agribank is now 8% instead of 4% as previously applied.
The new decision has not been welcomed by commercial banks. The Director General of a joint stock bank said that he was not pleased with the decision as it would make operation expenses higher, though he acknowledged that the usable capital of banks was relatively high now and the decision would not badly affect the banks in the short term.
However, experts have warned that with such a high compulsory reserve rate, banks will be short of usable capital in several months.
An expert from a foreign bank branch has warned that the impact of the decision on raising the compulsory reserve rate will be clearly seen in three months. He said that the market would see capital shortage and banks might consider raising interest rates.
One month ago, members of the Vietnam Banking Association reached an agreement on lowering the interest rates on bank deposits. However, with the new decision from SBV, the agreement may be voided and the interest rates may be raised again.
SBV is now trying to make a move to curb inflation and control credit quality. Most recently, it decided that outstanding loans funding securities trading deals must not exceed 3% of banks’ total outstanding loans.
Source: VNE
Under the new decision, the compulsory reserve rate applied for under-12-month term deposits has been raised from 5% to 10%. The rate for Agribank is now 8% instead of 4% as previously applied.
The new decision has not been welcomed by commercial banks. The Director General of a joint stock bank said that he was not pleased with the decision as it would make operation expenses higher, though he acknowledged that the usable capital of banks was relatively high now and the decision would not badly affect the banks in the short term.
However, experts have warned that with such a high compulsory reserve rate, banks will be short of usable capital in several months.
An expert from a foreign bank branch has warned that the impact of the decision on raising the compulsory reserve rate will be clearly seen in three months. He said that the market would see capital shortage and banks might consider raising interest rates.
One month ago, members of the Vietnam Banking Association reached an agreement on lowering the interest rates on bank deposits. However, with the new decision from SBV, the agreement may be voided and the interest rates may be raised again.
SBV is now trying to make a move to curb inflation and control credit quality. Most recently, it decided that outstanding loans funding securities trading deals must not exceed 3% of banks’ total outstanding loans.
Source: VNE
Vietnam probes central bank chief over irregularities
Vietnam has asked its central bank chief to explain irregularities in issuing new plastic bank notes and why his son had worked in a company involved in printing the bills, a report said Wednesday.
Prime Minister Nguyen Tan Dung has asked State Bank of Vietnam (SBV) Governor Le Duc Thuy to report back by the end of the month and to find and punish any culprits, said the state-controlled Tuoi Tre (Youth) newspaper.
The government inspectorate had found violations of internal rules and bidding regulations when the SBV produced new polymer bills and metal coins last year, angering the public because of a series of technical flaws.
The governor's son, Le Duc Minh, had worked for more than two months for a company involved in printing the bills, "casting doubt on the objectivity of the SBV in its choice of supplier and creating a bad image for the governor," the daily quoted vice government inspector Le Tien Hao as saying.
Minh had worked for BankTech, the Banking Technology Development Co Ltd, part of the Hanoi-based Company for Technology and Development, a supplier of high-tech and IT products and services to state agencies and other clients.
The prime minister had asked the governor and his deputies to embark on "self-criticism" and "clarify their collective duty and the responsibility of those involved and seriously punish the violators," said Tuoi Tre.
Source: Reuters
Prime Minister Nguyen Tan Dung has asked State Bank of Vietnam (SBV) Governor Le Duc Thuy to report back by the end of the month and to find and punish any culprits, said the state-controlled Tuoi Tre (Youth) newspaper.
The government inspectorate had found violations of internal rules and bidding regulations when the SBV produced new polymer bills and metal coins last year, angering the public because of a series of technical flaws.
The governor's son, Le Duc Minh, had worked for more than two months for a company involved in printing the bills, "casting doubt on the objectivity of the SBV in its choice of supplier and creating a bad image for the governor," the daily quoted vice government inspector Le Tien Hao as saying.
Minh had worked for BankTech, the Banking Technology Development Co Ltd, part of the Hanoi-based Company for Technology and Development, a supplier of high-tech and IT products and services to state agencies and other clients.
The prime minister had asked the governor and his deputies to embark on "self-criticism" and "clarify their collective duty and the responsibility of those involved and seriously punish the violators," said Tuoi Tre.
Source: Reuters
Sunday, June 03, 2007
State Bank's decision on compulsory reserve rate surprises banks
The State Bank of Vietnam (SBV) has decided to increase the compulsory VND reserve rate applicable to banks, and the decision seems to have been unexpected by banks.
The rate is up from 5% to 10% for non-term and under-12-month Vietnamese dong savings at State owned banks, rural commercial banks, joint venture banks, foreign bank branches, and finance firms. For the Bank for Agriculture and Rural Development of Vietnam (Agribank), the rate is 8%.
The decision, according to SBV, aims to help curb inflation this year. However, it seems to unsatisfactory to banks, as the news came unexpectedly.
With the new compulsory reserve rate of 10% (if a bank mobilises VND10 in capital from the public, it will have to make a deposit of VND1, or 10% of VND10 at the central bank, and can only lend the other VND9).
An official from SBV said that the capital at banks was now superfluous; therefore, it would be better for banks to make deposits at the central bank. Commercial banks will get interest for the deposits, which is better than leaving the capital idle and unprofitable. Moreover, raising the compulsory reserve rate can be considered a suitable tool aiming to stabilise currency value.
In fact, over the last one year, when commercial banks all reported excess of usable capital, they tried to give more loans. The statistics showed the credit growth rate of 30% in the first quarter of the year. In February and March, the credit growth rates were reportedly very high, at 6% per month.
“The required higher compulsory reserve rate will force banks to keep cautious when giving loans,” the official said.
Nevertheless, experts have pointed out that in the long term, when capital become scarcer, the high compulsory reserve rate will have the reverse impact, as this will make banks’ expenses higher. With the high compulsory reserve rate, banks will have less capital to lend production and business, because their capital is deposited at the central bank.
According to many bankers, the central bank should have consulted with commercial banks before making a decision.
The director of a joint stock bank said that the excess of capital only happened with State owned banks and not joint stock banks. Therefore, the move by SBV would have bad impacts on joint stock banks’ operations. He stressed that the 30% credit growth rate is not big, and it is not necessary to curb the credit growth rate by requiring higher compulsory reserve.
“There are two most important tasks that the central bank needs to harmonise: curbing inflation, and capitalising the national economy,” the director said.
Source: VNE
The rate is up from 5% to 10% for non-term and under-12-month Vietnamese dong savings at State owned banks, rural commercial banks, joint venture banks, foreign bank branches, and finance firms. For the Bank for Agriculture and Rural Development of Vietnam (Agribank), the rate is 8%.
The decision, according to SBV, aims to help curb inflation this year. However, it seems to unsatisfactory to banks, as the news came unexpectedly.
With the new compulsory reserve rate of 10% (if a bank mobilises VND10 in capital from the public, it will have to make a deposit of VND1, or 10% of VND10 at the central bank, and can only lend the other VND9).
An official from SBV said that the capital at banks was now superfluous; therefore, it would be better for banks to make deposits at the central bank. Commercial banks will get interest for the deposits, which is better than leaving the capital idle and unprofitable. Moreover, raising the compulsory reserve rate can be considered a suitable tool aiming to stabilise currency value.
In fact, over the last one year, when commercial banks all reported excess of usable capital, they tried to give more loans. The statistics showed the credit growth rate of 30% in the first quarter of the year. In February and March, the credit growth rates were reportedly very high, at 6% per month.
“The required higher compulsory reserve rate will force banks to keep cautious when giving loans,” the official said.
Nevertheless, experts have pointed out that in the long term, when capital become scarcer, the high compulsory reserve rate will have the reverse impact, as this will make banks’ expenses higher. With the high compulsory reserve rate, banks will have less capital to lend production and business, because their capital is deposited at the central bank.
According to many bankers, the central bank should have consulted with commercial banks before making a decision.
The director of a joint stock bank said that the excess of capital only happened with State owned banks and not joint stock banks. Therefore, the move by SBV would have bad impacts on joint stock banks’ operations. He stressed that the 30% credit growth rate is not big, and it is not necessary to curb the credit growth rate by requiring higher compulsory reserve.
“There are two most important tasks that the central bank needs to harmonise: curbing inflation, and capitalising the national economy,” the director said.
Source: VNE
Thursday, May 31, 2007
Vietnam central bank warns lending should be prudent
The Vietnamese central bank has told commercial banks and financial institutions to improve credit quality and go easy on loans against securities in a bid to keep inflation in check.
In a dispatch Monday the State Bank of Vietnam (SBV) told financial institutions to keep loans against securities to below 3% of total outstanding loans.
It also directed them to tighten control on consumption loans and lending for business and production, and to crack down on businesses misusing loans to but securities.
The SBV urged state-run banks to improve reporting of foreign exchange transactions to monitor foreign portfolio investment inflows into the country.
It told them to improve risk management and earmark reserves for lending against stocks.
An SBV official said banks often lent up to 50% of the value of a share pledged as collateral which was too high. Banks claim they fully evaluate the risks before lending against stocks and that the risk is manageable. An official said banks did not loan more than 50% of a stock’s market value.
Source: Thanh Nien
In a dispatch Monday the State Bank of Vietnam (SBV) told financial institutions to keep loans against securities to below 3% of total outstanding loans.
It also directed them to tighten control on consumption loans and lending for business and production, and to crack down on businesses misusing loans to but securities.
The SBV urged state-run banks to improve reporting of foreign exchange transactions to monitor foreign portfolio investment inflows into the country.
It told them to improve risk management and earmark reserves for lending against stocks.
An SBV official said banks often lent up to 50% of the value of a share pledged as collateral which was too high. Banks claim they fully evaluate the risks before lending against stocks and that the risk is manageable. An official said banks did not loan more than 50% of a stock’s market value.
Source: Thanh Nien
Wednesday, May 30, 2007
Vietnam to double bank reserve requirements
Vietnam will double the levels of compulsory reserves that foreign and domestic banks must keep with the central bank in dong from June 1, a move aimed at reining in inflation, the central bank said.
A central bank directive signed on Monday boosted reserve requirements to 10% on deposits with terms of up to 12 months, from 5% that had been in effect since July 1, 2004.
Vietnam's consumer price inflation in May accelerated to 7.31% from a year earlier on higher fuel and food costs, up from 7.16% in April, the government said last week.
The rise is above a government target to keep annual inflation this year at less than 7 percent. The central bank's reserve requirement forces commercial banks to set aside more dong, reducing the cash that could otherwise be loaned, bankers said.
"The move will reduce banks' liquidity but interest rates would not change as banks still have funds in surplus," a dealer at a foreign bank branch in Ho Chi Minh City said.
Four state-run banks offered their overnight dong loans at 3.5-4% on Wednesday, unchanged in the past 10 days. Bankers said steady rates suggested funds in the banking system remained at a healthy level.
Vietnam has more than 40 commercial banks, but five state-run banks control more than 70 percent of lending. Besides, branches of 35 foreign banks and six joint venture banks operate in the country.
Source: Reuters
A central bank directive signed on Monday boosted reserve requirements to 10% on deposits with terms of up to 12 months, from 5% that had been in effect since July 1, 2004.
Vietnam's consumer price inflation in May accelerated to 7.31% from a year earlier on higher fuel and food costs, up from 7.16% in April, the government said last week.
The rise is above a government target to keep annual inflation this year at less than 7 percent. The central bank's reserve requirement forces commercial banks to set aside more dong, reducing the cash that could otherwise be loaned, bankers said.
"The move will reduce banks' liquidity but interest rates would not change as banks still have funds in surplus," a dealer at a foreign bank branch in Ho Chi Minh City said.
Four state-run banks offered their overnight dong loans at 3.5-4% on Wednesday, unchanged in the past 10 days. Bankers said steady rates suggested funds in the banking system remained at a healthy level.
Vietnam has more than 40 commercial banks, but five state-run banks control more than 70 percent of lending. Besides, branches of 35 foreign banks and six joint venture banks operate in the country.
Source: Reuters
Friday, April 13, 2007
Statebank of Vietnam's thoughts abouting floating Dong rates
Vietnam, with a small but fast-expanding economy, wants the restricted Vietnamese dong to be convertible in the international market, a central bank official said on Thursday.
"We want the dong to become a convertible currency," Deputy Governor of the State Bank of Vietnam Phung Khac Ke told reporters after a signing ceremony of a $35 million financing agreement with the World Bank to help Vietnam fight bird flu.
"The government has assigned the State Bank to work on this project," he said without giving further details or outlining a timetable for currency convertibility.
Vietnam's economy is projected to grow more than 8 percent this year. The country's gross domestic product expanded 8.17 percent last year to around $60 billion.
Asked if the central bank planned a further depreciation of the dong to support exports, Ke said: "Our policy in managing the dong is to aim for a stability and flexibility to support both exports and imports."
Vietnam had a trade deficit of $1.32 billion in the first quarter of this year, against a $60 million surplus after the first three months of 2006.
The World Bank last week forecast that Vietnam's trade deficit would jump 26.5% to $7.98 billion this year from 2006.
But it also forecast that the country's foreign currency reserves plus gold would be boosted to $16 billion this year from $12.5 billion last year and $8.6 billion in 2005.
Truong Van Phuoc, director of the central bank's Central Banking Department, said in March the central bank did not have any fixed outlook on the dong's movement against the dollar.
The central bank has allowed the dong to weaken so far this year just 0.07 percent against the dollar.
On Thursday the dong eased to 16,112 to the dollar, from 16,101 at the end of 2006.
Source: Thanh Nien
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