Citibank experts say in a newly released report that the local currency has lost 0.8% in value since July 2007, and that the VND is at risk of further devaluating in the time to come.
Citibank on August 29 released a report about Asia’s economy, which mentions the key problems of Vietnam at this moment: inflation, monetary policy and external risks.
The report says that there are no signs of inflation decreasing due to the price increases of food and construction materials. The government has decided to lower import taxes on several kinds of products, but it will still take time to confirm the impacts of the decision on retail prices.
Citibank says it’s a possibility that the inflation rate will be lower than the GDP growth rate, which is estimated to reach 8% in 2007. However, this will happen only if crude oil can be stabilised and Vietnam continues tightening its monetary policy, and controlling the prices of key products.
Regarding the value of the local currency, Citibank says that the local currency has devaluated by 0.8% since the end of July. The demand of enterprises and importers for dollars has increased. The wider gap in the purchasing and selling prices between the VND and the greenback also shows less demand for VND compared to the greenback.
Regarding external risks, Citibank says that the trade gap doubled between January and July 2007 due to the sharp increases of imports.
Despite the big difficulties caused by the high inflation rate and the external risks, Citibank’s experts give the optimistic conclusion that Vietnam’s national economy will be firm enough to deal with the difficulties. Industrial value in July increased by 18.7% over the same period last year, while retail turnover increased by 23.1%, and foreign direct investment by 49.8%.
The increased demand on the domestic market will make up for the trade gap. Moreover, one of the factors that lead the experts to give the optimistic conclusion is the successful reelection of Prime Minister Nguyen Tan Dung. The new cabinet which comprises young and intellectual members is expected to actively impact the national economy.
Citibank’s experts also discuss some risks for Vietnam, including a food shortage and further price increases due to animal epidemics, as well as the further devaluation of the local currency.
Source: VNE
Showing posts with label Money Market. Show all posts
Showing posts with label Money Market. Show all posts
Thursday, August 30, 2007
Thursday, August 16, 2007
Dollar surges to VND16'200
The local foreign exchange market witnessed a strong surge of the dollar against the local currency by end of last week and early this week.
The market was trading the greenback at VND16,180 to the dollar in the first days of last week, but the hard currency suddenly rose up significantly last Friday to close last week at VND16,210.
The big movement was attributed to a high dollar overnight interest rate traded since late last week till now. Inter-bank dollar interest rate for very short tenors (from overnight to two weeks) was at around 6% which almost twice the dong's overnight rate.
Consequently, no banks would like to keep the USD/VND short position while the market has still seen high demand for dollars from importers.
This movement is also recorded as one of the biggest depreciation on a daily basis (0.2% this time) in the last couple of years.
With the trading level at VND16,210 to the dollar at the moment, the dong has lost 0.9% versus the greenback in the year to date.
Meanwhile the exchange rate between the local currency against other major currencies continued to fluctuate broadly due to recent turbulence in global financial markets.
The euro dropped to VND22,120 from 22,320 one week earlier while high-yielding currencies like the Australian and New Zealand dollars also weakened sharply as declines in global equities and fears of liquidity and financing problems.
Meanwhile, the yen jumped to VND137.80 from 135.80 one week earlier since the yen strengthened broadly against the dollar by the end of last week as the current crisis in global financial markets caused big concern to investors.
After around six weeks of stability, the dong overnight rate has increased over last week. Average interbank offer rate is 3.45%, an increase of 17 basis points. Interest rates for short tenors also had similar changes, with one week offer at 3.82% (upby 18 points), and one month at 5.31% (up by 9 points).
It has been predicted that at this stage short term rates should go up, since high consumer prices are pressuring the government to implement anti-inflationary policies.
Reportedly, increasing demands for government short term T-notes and for greenbacks in the local market are driving dong interest rates up this time. Rates should keep up the same pace for this week.
Last week the State Bank of Vietnam withdrew VND6.1tril via its open market operations. This reflects a significant reduction in the amount of open market withdrawals, which were more than VND10tril every week over the last month.
This showed that surplus in the banking system has diminished thanks to new issuance of government notes of 182, 273, and 364 days.
This week should see further decrease of surplus in the system as the open market operations will be strengthened.
Source: VNE
The market was trading the greenback at VND16,180 to the dollar in the first days of last week, but the hard currency suddenly rose up significantly last Friday to close last week at VND16,210.
The big movement was attributed to a high dollar overnight interest rate traded since late last week till now. Inter-bank dollar interest rate for very short tenors (from overnight to two weeks) was at around 6% which almost twice the dong's overnight rate.
Consequently, no banks would like to keep the USD/VND short position while the market has still seen high demand for dollars from importers.
This movement is also recorded as one of the biggest depreciation on a daily basis (0.2% this time) in the last couple of years.
With the trading level at VND16,210 to the dollar at the moment, the dong has lost 0.9% versus the greenback in the year to date.
Meanwhile the exchange rate between the local currency against other major currencies continued to fluctuate broadly due to recent turbulence in global financial markets.
The euro dropped to VND22,120 from 22,320 one week earlier while high-yielding currencies like the Australian and New Zealand dollars also weakened sharply as declines in global equities and fears of liquidity and financing problems.
Meanwhile, the yen jumped to VND137.80 from 135.80 one week earlier since the yen strengthened broadly against the dollar by the end of last week as the current crisis in global financial markets caused big concern to investors.
After around six weeks of stability, the dong overnight rate has increased over last week. Average interbank offer rate is 3.45%, an increase of 17 basis points. Interest rates for short tenors also had similar changes, with one week offer at 3.82% (upby 18 points), and one month at 5.31% (up by 9 points).
It has been predicted that at this stage short term rates should go up, since high consumer prices are pressuring the government to implement anti-inflationary policies.
Reportedly, increasing demands for government short term T-notes and for greenbacks in the local market are driving dong interest rates up this time. Rates should keep up the same pace for this week.
Last week the State Bank of Vietnam withdrew VND6.1tril via its open market operations. This reflects a significant reduction in the amount of open market withdrawals, which were more than VND10tril every week over the last month.
This showed that surplus in the banking system has diminished thanks to new issuance of government notes of 182, 273, and 364 days.
This week should see further decrease of surplus in the system as the open market operations will be strengthened.
Source: VNE
Tuesday, August 14, 2007
Vietnam doubles forex reserves, fights inflation
Vietnam has enough foreign exchange reserves to cover 20 weeks of imports, a senior central bank official was quoted on Tuesday as saying.
"We have dozens of billions of U.S. dollar in reserves," the Thanh Nien newspaper quoted Deputy Governor of the State Bank of Vietnam Nguyen Dong Tien as saying.
"While the foreign exchange reserves were just enough to cover nine to 10 weeks of imports, now they are enough for 20 weeks," Tien told a news conference on Monday to which foreign reporters were not invited.
He did not give the absolute value of reserves but said the increase resulted from rising foreign investment inflows and central bank purchases of foreign exchange to hold down the dong.
Economists say the central bank has bought $7 billion this year, meaning some 110 trillion dong has been pumped into the economy, which has fuelled inflation.
Consumer prices in July were 8.39 percent higher than the same month last year and by the end of July the consumer price index had risen 6.19 percent from the end of 2006.
The government is aiming for annual GDP growth of 8.5 percent this year while keeping inflation below that growth rate.
Economists say double-digit inflation is a possibility, but Tien told the news conference that the central bank had stepped up its draining of inflation-fuelling funds from the economy through open market transactions.
So far it had mopped up 80 percent of the dong spent to purchase the foreign currency, Tien said.
"The prime minister has a belief that it will be feasible to achieve both high economic growth and control of inflation," Tien was quoted by Thanh Nien as saying.
"I personally also believe so and I am ready to bet with anyone who says this year's inflation is double-digit," he said.
To back up the fight against inflation, the Finance Ministry cut the import duty on several diary products, meat, home appliances and cars last week.
The Finance Ministry and the Ministry of Industry and Trade are also asking domestic petrol distributors to cut petrol prices by 500 dong per litre, the government said. That is a cut of around 4 percent.
The government has instructed the Agriculture Ministry to try to contain pig disease now spreading in the central and southern provinces, which is pushing up meat prices.
Food accounts for more than 40 percent of the basket used to calculate Vietnam's consumer price index.
Source: Reuters
"We have dozens of billions of U.S. dollar in reserves," the Thanh Nien newspaper quoted Deputy Governor of the State Bank of Vietnam Nguyen Dong Tien as saying.
"While the foreign exchange reserves were just enough to cover nine to 10 weeks of imports, now they are enough for 20 weeks," Tien told a news conference on Monday to which foreign reporters were not invited.
He did not give the absolute value of reserves but said the increase resulted from rising foreign investment inflows and central bank purchases of foreign exchange to hold down the dong.
Economists say the central bank has bought $7 billion this year, meaning some 110 trillion dong has been pumped into the economy, which has fuelled inflation.
Consumer prices in July were 8.39 percent higher than the same month last year and by the end of July the consumer price index had risen 6.19 percent from the end of 2006.
The government is aiming for annual GDP growth of 8.5 percent this year while keeping inflation below that growth rate.
Economists say double-digit inflation is a possibility, but Tien told the news conference that the central bank had stepped up its draining of inflation-fuelling funds from the economy through open market transactions.
So far it had mopped up 80 percent of the dong spent to purchase the foreign currency, Tien said.
"The prime minister has a belief that it will be feasible to achieve both high economic growth and control of inflation," Tien was quoted by Thanh Nien as saying.
"I personally also believe so and I am ready to bet with anyone who says this year's inflation is double-digit," he said.
To back up the fight against inflation, the Finance Ministry cut the import duty on several diary products, meat, home appliances and cars last week.
The Finance Ministry and the Ministry of Industry and Trade are also asking domestic petrol distributors to cut petrol prices by 500 dong per litre, the government said. That is a cut of around 4 percent.
The government has instructed the Agriculture Ministry to try to contain pig disease now spreading in the central and southern provinces, which is pushing up meat prices.
Food accounts for more than 40 percent of the basket used to calculate Vietnam's consumer price index.
Source: Reuters
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
Credit Suisse, and Vinalines in $700 mln loan deal
Global bank Credit Suisse said on Monday it would arrange up to $700 million in credit for Vietnam National Shipping Lines (Vinalines), the first offshore loan for the Vietnamese firm.
Mai Van Phuc, President and CEO of the unlisted Vinalines, said the agreement was part of a memorandum under which it would get from Credit Suisse ratings advisory, fund raising and risk management services, Credit Suisse said in a statement.
The Financial Service Memorandum envisaged the bank to develop a financing programme of up to $1 billion for Vinalines, the first offshore loans for Vietnam's leading shipping firm.
In January Credit Suisse said it had linked up with Vinalines and Vinashin, a leading ship building firm, to work on financing programmes as it ramps up activity in Vietnam's fast-growing economy.
In June it was the rating adviser and sole arranger for a $600 million loan to Vinashin, the global bank said.
Credit Suisse expects Vietnam's economy to grow 9.2 percent this year, after estimated growth of 8.2 percent in 2006.
The forecast is above a Vietnamese government growth projection of 8.5 percent for the whole of 2007.
Source: Reuters
Mai Van Phuc, President and CEO of the unlisted Vinalines, said the agreement was part of a memorandum under which it would get from Credit Suisse ratings advisory, fund raising and risk management services, Credit Suisse said in a statement.
The Financial Service Memorandum envisaged the bank to develop a financing programme of up to $1 billion for Vinalines, the first offshore loans for Vietnam's leading shipping firm.
In January Credit Suisse said it had linked up with Vinalines and Vinashin, a leading ship building firm, to work on financing programmes as it ramps up activity in Vietnam's fast-growing economy.
In June it was the rating adviser and sole arranger for a $600 million loan to Vinashin, the global bank said.
Credit Suisse expects Vietnam's economy to grow 9.2 percent this year, after estimated growth of 8.2 percent in 2006.
The forecast is above a Vietnamese government growth projection of 8.5 percent for the whole of 2007.
Source: Reuters
Incombank issues CDs to raise $200 mln
State-run Vietnam Industrial and Commercial Bank (Incombank), the country's fourth-largest lender by assets, said on Monday it would raise $200 million through issuing dollar-denominated certificates of deposit (CD).
The Hanoi-based unlisted Incombank said it began issuing the CDs to Vietnamese investors and foreign investors residing in the country over a two-month period last week.
The bank did not say what it would use the proceeds for.
It offered to pay 5.3 percent interest on 12-month dollar-denominated certificates, 5.4 percent for 18-month deposits and 5.5 percent for the 24-month CDs, following approval from the central bank.
Incombank's assets at the end of June rose 12 percent from the end of 2006 to 155 trillion dong ($9.6 billion).
The central bank had said it would take more dong out of the economy in the coming months through open market transactions to curb inflation, which accelerated in July to 8.39 percent from a year earlier.
Source: ReutersMonday, July 30, 2007
US$ deposit interest rates and loaning up
Since mid March 2007, many joint stock banks have raised interest rates on US$ deposits by 0.05-0.57% per annum. Outstanding loans in US$ have also grown more rapidly than VND loans with the growth rates of 19% and 13%, respectively.
The raising of US$ deposit interest rates was initiated by joint stock banks, especially banks in Hanoi like Military Bank, VIB and Techcombank. The move later was followed by HCM City-based banks like Phuong Nam and Nam A. Other banks, though they have not adjusted interest rates, have launched promotional programmes in order to attract capital in US$.
Why are Vietnamese banks still raising deposit interest rates while the US FED has decided to maintain the US$ interest rate at 5.25% (the rate is expected to remain unchanged until the year’s end) and there are no big fluctuations in the international market?
Analysts have said that local banks have to raise deposit interest rates because they lack capital in foreign currencies. In general, in Hanoi, the proportion of mobilised capital in use is not high, at 61.3%; however, the figure is high among joint stock banks, at 82%.
The liabilities in foreign currencies of eight joint stock banks in Hanoi are VND12.9tril, while the assets have reached VND13.7tril. Since the end of 2006, joint stock banks have been largely unsuccessful at raising mobilised capital. In Hanoi, the mobilised capital in foreign currencies has even decreased by 2%.
Joint stock banks have not been able to mobilise much capital in foreign currencies from the public because people prefer depositing in VND to get more interest. Meanwhile, companies which can supply big sums of foreign currencies only have relations with state owned banks. In order to raise more capital in foreign currencies, joint stock banks have no other choice than raising deposit interest rates.
The growth rate of loaning in US$ remains relatively high because of two reasons.
First, enterprises try to import more goods and it is the time for disbursement for big projects. However, many experts say that this is not the main reason behind the interest rate increases.
As for big projects, disbursement always goes in accordance with a scheduled roadmap, while it does not come in the second quarter only. Moreover, enterprises that have high demand for capital in foreign currencies contact state owned banks rather than joint stock banks.
Meanwhile, state owned banks all said that the demand for foreign currencies had not increased considerably in the last three months, and that they could still supply enough foreign currencies. In fact, state owned banks have not raised their US$ deposit interest rates.
As for the demand for foreign currencies to make payments for import deals, bankers have said that the demand always decreases to the deepest low in the second quarter and that the demand only increases at the end of the third quarter.
Bank officials have pointed out that loaning in US$ increases because enterprises prefer borrowing in foreign currencies. It is to enterprises’ advantages to borrow in foreign currencies in comparison with VND, and in the current context of the exchange rate.
The sharp increase of loaning in foreign currencies has raised doubts about loaning to the wrong subjects. Under current regulations, credit institutions can only provide loans in foreign currencies to clients which have turnovers in foreign currencies for paying debts, and clients which do not have turnovers in foreign currencies but have permission from banks to sell foreign currencies for paying debts and can show contracts on buying foreign currencies.
As for banks, they are ready to lend money, no matter in VND or foreign currencies, if they can make profit on the deals. The director of a bank even said that banks could get more profit when lending in foreign currencies as enterprises use derivative products of banks, from which banks can collect fees.
Though only joint stock banks have joined the move of raising deposit interest rates, state owned banks may get involved in the game. State owned banks are considering raising interest rates because they fear that joint stock banks will attract their traditional clients.
The escalating deposit interest rates will certainly lead to the increase of lending interest rates. This will make credit contracts signed in previous years difficult to be disbursed (medium- and long-term interest rates are never fixed, but always floating). Meanwhile, expenses for paying debts in the medium term will be higher for the credit contracts signed at this moment.
Experts have also warned that the increased interest rates would be a burden on small- and medium-size enterprises, a sector that plays a decisive role in export growth and national economic development.
Source: VNE
The raising of US$ deposit interest rates was initiated by joint stock banks, especially banks in Hanoi like Military Bank, VIB and Techcombank. The move later was followed by HCM City-based banks like Phuong Nam and Nam A. Other banks, though they have not adjusted interest rates, have launched promotional programmes in order to attract capital in US$.
Why are Vietnamese banks still raising deposit interest rates while the US FED has decided to maintain the US$ interest rate at 5.25% (the rate is expected to remain unchanged until the year’s end) and there are no big fluctuations in the international market?
Analysts have said that local banks have to raise deposit interest rates because they lack capital in foreign currencies. In general, in Hanoi, the proportion of mobilised capital in use is not high, at 61.3%; however, the figure is high among joint stock banks, at 82%.
The liabilities in foreign currencies of eight joint stock banks in Hanoi are VND12.9tril, while the assets have reached VND13.7tril. Since the end of 2006, joint stock banks have been largely unsuccessful at raising mobilised capital. In Hanoi, the mobilised capital in foreign currencies has even decreased by 2%.
Joint stock banks have not been able to mobilise much capital in foreign currencies from the public because people prefer depositing in VND to get more interest. Meanwhile, companies which can supply big sums of foreign currencies only have relations with state owned banks. In order to raise more capital in foreign currencies, joint stock banks have no other choice than raising deposit interest rates.
The growth rate of loaning in US$ remains relatively high because of two reasons.
First, enterprises try to import more goods and it is the time for disbursement for big projects. However, many experts say that this is not the main reason behind the interest rate increases.
As for big projects, disbursement always goes in accordance with a scheduled roadmap, while it does not come in the second quarter only. Moreover, enterprises that have high demand for capital in foreign currencies contact state owned banks rather than joint stock banks.
Meanwhile, state owned banks all said that the demand for foreign currencies had not increased considerably in the last three months, and that they could still supply enough foreign currencies. In fact, state owned banks have not raised their US$ deposit interest rates.
As for the demand for foreign currencies to make payments for import deals, bankers have said that the demand always decreases to the deepest low in the second quarter and that the demand only increases at the end of the third quarter.
Bank officials have pointed out that loaning in US$ increases because enterprises prefer borrowing in foreign currencies. It is to enterprises’ advantages to borrow in foreign currencies in comparison with VND, and in the current context of the exchange rate.
The sharp increase of loaning in foreign currencies has raised doubts about loaning to the wrong subjects. Under current regulations, credit institutions can only provide loans in foreign currencies to clients which have turnovers in foreign currencies for paying debts, and clients which do not have turnovers in foreign currencies but have permission from banks to sell foreign currencies for paying debts and can show contracts on buying foreign currencies.
As for banks, they are ready to lend money, no matter in VND or foreign currencies, if they can make profit on the deals. The director of a bank even said that banks could get more profit when lending in foreign currencies as enterprises use derivative products of banks, from which banks can collect fees.
Though only joint stock banks have joined the move of raising deposit interest rates, state owned banks may get involved in the game. State owned banks are considering raising interest rates because they fear that joint stock banks will attract their traditional clients.
The escalating deposit interest rates will certainly lead to the increase of lending interest rates. This will make credit contracts signed in previous years difficult to be disbursed (medium- and long-term interest rates are never fixed, but always floating). Meanwhile, expenses for paying debts in the medium term will be higher for the credit contracts signed at this moment.
Experts have also warned that the increased interest rates would be a burden on small- and medium-size enterprises, a sector that plays a decisive role in export growth and national economic development.
Source: VNE
Firms still bashful about bonds
Corporate bonds are still an unpopular method for raising capital, despite holding several advantages over Stocks and bank loans.
In 2006, the Government passed Decree 52/2006/ND-CP allowing private companies to issue debentures, yet few took advantage of this new source of capital. The majority of bonds in the market are from State enterprises.
Earlier this month, the HCM City Infrastructure Investment JSC (CII) succeeded in selling VND500bil (US$31.25mil) in debentures, one of the few private listings this year. The Viet Nam International Bank (VIBank) and International Securities Company (VISecurities) acted as underwriters.
CII bonds were bought by seven major institutional investors, including the Bank for Investment and Development of Vietnam, Military Bank, Bao Viet Fund Management and Hong Kong - based PCA Investment Funds.
Despite CII's success, companies still prefer traditional avenues for raising money.
Experts, though, argue if a company has been long established and has a solid performance record then there was no need to rely on bank loans and stocks, but could instead issue bonds.
"The cost of issuing corporate bonds is often lower than that of issuing shares, and companies can easily raise a huge amount of money at the same time," said Vo Hoai Chang, deputy research head at SME Securities.
"Besides, the success rates of bond issues are higher because when issuing bonds a company must have an institution to guarantee the bonds if they go unsold in the auction."
VIBank deputy director Nguyen Dinh Tung noted that bond rates currently are lower than bank loans.
CII seven-year bonds carry a 10.3% coupon rate, while if the company borrowed from a bank the interest would be 1-1.5% a year higher.
"However, the reason for bonds being unpopular lies in procedures to find a guarantor," said Chang.
"Normally, companies often raise a large amount of money through issuing bonds, often from VND100bil to VND500bil, so they have to find a guarantor who has the financial capacity to cover the amount," which is not easy in the current monetary tightening cycle.
Chang also said State enterprises are better equipped to offer bonds, because they tend to have long term development plans and the financial capacity to cover debts.
In contrast, private companies tend to look at the short or medium term and, therefore, do not have the same capital requirements.
In fact, only infrastructure and real estate developers, like CII, needed a large amount of capital quickly, said Chang.
CII will invest the money raised via the debentures into high-rise building projects in HCM City, the Tan An Hoi residential zone and the Tam Tan resettlement zone.
So for the time being, the bond market remains in its infancy, though analysts foresee strong growth.
"It is likely that in the next one or two years, the market will develop as companies begin to recognise the benefits of issuing bonds and investors start being lured by bonds," Chang said.
"Several securities companies have set up research and analysis departments focusing on bonds to help develop the market and raise investor awareness."
Tung added that as companies exhaust traditional avenues for mobilising capital then the bond market should accelerate.
Source: VNE
In 2006, the Government passed Decree 52/2006/ND-CP allowing private companies to issue debentures, yet few took advantage of this new source of capital. The majority of bonds in the market are from State enterprises.
Earlier this month, the HCM City Infrastructure Investment JSC (CII) succeeded in selling VND500bil (US$31.25mil) in debentures, one of the few private listings this year. The Viet Nam International Bank (VIBank) and International Securities Company (VISecurities) acted as underwriters.
CII bonds were bought by seven major institutional investors, including the Bank for Investment and Development of Vietnam, Military Bank, Bao Viet Fund Management and Hong Kong - based PCA Investment Funds.
Despite CII's success, companies still prefer traditional avenues for raising money.
Experts, though, argue if a company has been long established and has a solid performance record then there was no need to rely on bank loans and stocks, but could instead issue bonds.
"The cost of issuing corporate bonds is often lower than that of issuing shares, and companies can easily raise a huge amount of money at the same time," said Vo Hoai Chang, deputy research head at SME Securities.
"Besides, the success rates of bond issues are higher because when issuing bonds a company must have an institution to guarantee the bonds if they go unsold in the auction."
VIBank deputy director Nguyen Dinh Tung noted that bond rates currently are lower than bank loans.
CII seven-year bonds carry a 10.3% coupon rate, while if the company borrowed from a bank the interest would be 1-1.5% a year higher.
"However, the reason for bonds being unpopular lies in procedures to find a guarantor," said Chang.
"Normally, companies often raise a large amount of money through issuing bonds, often from VND100bil to VND500bil, so they have to find a guarantor who has the financial capacity to cover the amount," which is not easy in the current monetary tightening cycle.
Chang also said State enterprises are better equipped to offer bonds, because they tend to have long term development plans and the financial capacity to cover debts.
In contrast, private companies tend to look at the short or medium term and, therefore, do not have the same capital requirements.
In fact, only infrastructure and real estate developers, like CII, needed a large amount of capital quickly, said Chang.
CII will invest the money raised via the debentures into high-rise building projects in HCM City, the Tan An Hoi residential zone and the Tam Tan resettlement zone.
So for the time being, the bond market remains in its infancy, though analysts foresee strong growth.
"It is likely that in the next one or two years, the market will develop as companies begin to recognise the benefits of issuing bonds and investors start being lured by bonds," Chang said.
"Several securities companies have set up research and analysis departments focusing on bonds to help develop the market and raise investor awareness."
Tung added that as companies exhaust traditional avenues for mobilising capital then the bond market should accelerate.
Source: VNE
Friday, July 27, 2007
The strange moves of interest rates
Bank interest rates have been fluctuating wildly, and the strange moves seem to be making everything unpredictable.
At the end of December 2006 and in early January 2007, when VND was scarce, the overnight interest rate increased sharply, and then fell down, staying at 5% per annum.
At the end of June 2007, when the State Bank of Vietnam required higher compulsory reserve ratio, the overnight interest rate in the inter-bank market climbed to 7% per annum. However, the rate later fell dramatically to 3.5-4% per annum, even lower than the overnight rate applied for US$ loans at 5.25%, which has not been seen in the monetary market for a good many years.
A paradox exists: though banks’ usable capital is now profuse, they have still raised the interest rates on both VND and US$ deposits.
Though the stock market proves to be a good investment channel, commercial banks still can attract huge capital from the public. By June 30, 2007, banks in HCM City had mobilised VND377,500bil ($23,593mil) in capital, an increase of 32% over the end of 2006, while providing VND292,400bil ($18,275mil) in loans, an increase of 27.2%, according to the HCM City branch of the State Bank of Vietnam.
Banks have said that deposits made by both domestic and international institutions have been increasing sharply. Domestic and foreign investment funds have big sums of VND waiting for disbursement. A part of the money has been temporarily invested in Government and corporate bonds. Though the Government bond’s average interest rate has decreased compared to the beginning of the year, the rates remain relatively high, at 7.3-7.5% per annum.
Portfolio investment keeps flowing into Vietnam, though the VN Index has decreased in the last few months. Foreign investors expect to disburse their money for the IPOs of big corporations slated for the coming months.
Though usable capital is redundant, banks are not lowering the mobilisation rate, and are even raising deposit interest rates in order to attract more clients. Experts have said that traditional clients sometimes can get higher interest rates than the rates publicly declared by banks.
Experts say that interest rates have been pushed up as a result of stiff competition among banks. Several banks, which have shifted to operate as urban banks instead of rural banks, have to offer high interest rates to attract more clients.
The increased inflow of foreign capital into Vietnam has led to the temporary excess of foreign currencies. In the first five months of the year, the State Bank bought $7bil worth of foreign currencies, raising the foreign currency reserve to more than $20bil. In order to buy $7bil, the State Bank had to spend VND112tril, equal to 38% of total outstanding loans of all commercial banks in HCM City.
In order to control inflation, the State Bank has to withdraw cash from circulation through the open market and by auctioning valuable papers. In previous months, the central bank withdrew VND11,000-14,000bil ($687.5mil-875mil) a week, while the figure has risen to VND15,000-16,500bil ($937.5mil-1,031mil) a week after pessimistic predictions about the governments ability to keep the inflation rate below the GDP economic growth rate.
Experts have said that the sums of money the central bank withdraws every month will further increase if direct and indirect investment flows more strongly into Vietnam.
Source: VNE
At the end of December 2006 and in early January 2007, when VND was scarce, the overnight interest rate increased sharply, and then fell down, staying at 5% per annum.
At the end of June 2007, when the State Bank of Vietnam required higher compulsory reserve ratio, the overnight interest rate in the inter-bank market climbed to 7% per annum. However, the rate later fell dramatically to 3.5-4% per annum, even lower than the overnight rate applied for US$ loans at 5.25%, which has not been seen in the monetary market for a good many years.
A paradox exists: though banks’ usable capital is now profuse, they have still raised the interest rates on both VND and US$ deposits.
Though the stock market proves to be a good investment channel, commercial banks still can attract huge capital from the public. By June 30, 2007, banks in HCM City had mobilised VND377,500bil ($23,593mil) in capital, an increase of 32% over the end of 2006, while providing VND292,400bil ($18,275mil) in loans, an increase of 27.2%, according to the HCM City branch of the State Bank of Vietnam.
Banks have said that deposits made by both domestic and international institutions have been increasing sharply. Domestic and foreign investment funds have big sums of VND waiting for disbursement. A part of the money has been temporarily invested in Government and corporate bonds. Though the Government bond’s average interest rate has decreased compared to the beginning of the year, the rates remain relatively high, at 7.3-7.5% per annum.
Portfolio investment keeps flowing into Vietnam, though the VN Index has decreased in the last few months. Foreign investors expect to disburse their money for the IPOs of big corporations slated for the coming months.
Though usable capital is redundant, banks are not lowering the mobilisation rate, and are even raising deposit interest rates in order to attract more clients. Experts have said that traditional clients sometimes can get higher interest rates than the rates publicly declared by banks.
Experts say that interest rates have been pushed up as a result of stiff competition among banks. Several banks, which have shifted to operate as urban banks instead of rural banks, have to offer high interest rates to attract more clients.
The increased inflow of foreign capital into Vietnam has led to the temporary excess of foreign currencies. In the first five months of the year, the State Bank bought $7bil worth of foreign currencies, raising the foreign currency reserve to more than $20bil. In order to buy $7bil, the State Bank had to spend VND112tril, equal to 38% of total outstanding loans of all commercial banks in HCM City.
In order to control inflation, the State Bank has to withdraw cash from circulation through the open market and by auctioning valuable papers. In previous months, the central bank withdrew VND11,000-14,000bil ($687.5mil-875mil) a week, while the figure has risen to VND15,000-16,500bil ($937.5mil-1,031mil) a week after pessimistic predictions about the governments ability to keep the inflation rate below the GDP economic growth rate.
Experts have said that the sums of money the central bank withdraws every month will further increase if direct and indirect investment flows more strongly into Vietnam.
Source: VNE
Wednesday, July 25, 2007
VND/US$ exchange rate stable until year-end
Big international institutions all share the same view that the VND/US$ exchange rate will keep stable in the last part of the year as in the previous three years.
The strong flow of foreign capital into Vietnam over the last time has put pressure on the local currency, forcing the VND to revaluate. However, the fact that the State Bank of Vietnam is trying to buy more foreign currencies has helped stabilise the exchange rate.
According to Citibank, in 2004-2006, the VND lost 0.8-0.9% in value every year. However, the local currency unexpectedly revaluated in the first two months of 2007. The revaluation of the local currency halted in subsequent months; however, the local currency has revaluated again in the last three months, by 0.6% against the greenback.
The current exchange rate is VND16,138/US$1, which is lower than the rate seen in January 2007 (VND16,142/US$1), but higher than the VND16,060/US$1 level in mid February 2007.
The fact that the central bank bought dollars in large quantity in the last time has helped reduce the supply of foreign currencies on the market. This is considered the main reason that the greenback has recovered. The central bank has confirmed that it will continue buying foreign currencies in order to raise the foreign currency reserve and ensure the devaluation of the VND of 1% in 2007 as previously targeted.
Therefore, the reports by Citibank, HSBC, Standard Chartered all said that the VND would slightly devaluate in the short term. However, as the surplus in international payment balance remains high thanks to the big capital inflow (foreign direct investment FDI), overseas remittance and portfolio investment, this will maintain the pressure on the local currency.
Experts have voiced their concern about the increased supply of money on the market as the central bank is trying to buy more foreign currencies. In fact, in order to buy a big volume of foreign currencies, the central bank will have to put a big volume of VND into circulation, thus making it more difficult to realise the goal of curbing inflation.
In fact, international financial institutions, including the World Bank (WB) and International Monetary Fund (IMF), warned about the impact of the foreign capital flow on the monetary policy management earlier this year. WB even said that the investment flow would challenge the monetary policy.
It seems that the central bank has to do two works that may conflict with each other: putting more money into circulation to buy foreign currencies for reserve, while tightening the monetary policy to curb inflation. Therefore, every solution should be considered thoroughly to ensure reaching both purposes.
Most recently, the central bank has decided to raise the compulsory reserve ratio to 10% for bank deposits, a move aiming to tighten the monetary policy and withdraw money from circulation. However, the effects of the decision will only be clear in some months.
Source: VNE
The strong flow of foreign capital into Vietnam over the last time has put pressure on the local currency, forcing the VND to revaluate. However, the fact that the State Bank of Vietnam is trying to buy more foreign currencies has helped stabilise the exchange rate.
According to Citibank, in 2004-2006, the VND lost 0.8-0.9% in value every year. However, the local currency unexpectedly revaluated in the first two months of 2007. The revaluation of the local currency halted in subsequent months; however, the local currency has revaluated again in the last three months, by 0.6% against the greenback.
The current exchange rate is VND16,138/US$1, which is lower than the rate seen in January 2007 (VND16,142/US$1), but higher than the VND16,060/US$1 level in mid February 2007.
The fact that the central bank bought dollars in large quantity in the last time has helped reduce the supply of foreign currencies on the market. This is considered the main reason that the greenback has recovered. The central bank has confirmed that it will continue buying foreign currencies in order to raise the foreign currency reserve and ensure the devaluation of the VND of 1% in 2007 as previously targeted.
Therefore, the reports by Citibank, HSBC, Standard Chartered all said that the VND would slightly devaluate in the short term. However, as the surplus in international payment balance remains high thanks to the big capital inflow (foreign direct investment FDI), overseas remittance and portfolio investment, this will maintain the pressure on the local currency.
Experts have voiced their concern about the increased supply of money on the market as the central bank is trying to buy more foreign currencies. In fact, in order to buy a big volume of foreign currencies, the central bank will have to put a big volume of VND into circulation, thus making it more difficult to realise the goal of curbing inflation.
In fact, international financial institutions, including the World Bank (WB) and International Monetary Fund (IMF), warned about the impact of the foreign capital flow on the monetary policy management earlier this year. WB even said that the investment flow would challenge the monetary policy.
It seems that the central bank has to do two works that may conflict with each other: putting more money into circulation to buy foreign currencies for reserve, while tightening the monetary policy to curb inflation. Therefore, every solution should be considered thoroughly to ensure reaching both purposes.
Most recently, the central bank has decided to raise the compulsory reserve ratio to 10% for bank deposits, a move aiming to tighten the monetary policy and withdraw money from circulation. However, the effects of the decision will only be clear in some months.
Source: VNE
Monday, July 16, 2007
Dollar rates rise to help meet importer demand
A major Vietnamese bank has raised interest rates on dollar deposits in a bid to meet strong demand for funds from importers.
Bankers said state-run Vietcombank, which handles around 30 percent of Vietnam's trade payments, boosted its rates on dollar deposits with terms from six months to 60 months by between 0.1 and 0.25 of a percentage point.
Vietcombank, the country's third-largest lender by assets, has offered 4.65 percent for six-month deposits from July 6, up from 4.4 percent previously, while its rate for 12-month deposits went up to 5 percent from 4.85 percent.
From July 6, partly private Phuong Nam Bank also raised its dollar savings rates by 0.5 percentage point, the bank said.
Dollar rates in Vietnam have thus risen to between 4.2 percent and 5.3 percent in the past month, from 4-4.7 percent earlier.
Vietnam cut import tariffs on many goods following its WTO accession in January and importers have increased their purchases to meet domestic consumption.
Meanwhile, rates on dong deposits have eased slightly.
Vietnam's four big lenders, including Vietcombank, quoted overnight lending rates on the dong at 4-5 percent on Monday versus 4.5-5.0 percent last Monday.
The range on six-month rates also widened to 7.8-8.7 percent, against 8.4-8.7 percent two weeks ago.
But bankers said demand for dong funds would rise in the next few months as the state poured money into key projects in ship building, transport and energy. The Planning and Investment Ministry has forecast Vietnam would boost investment for development to 118 trillion dong ($7.3 billion) between July and September, up 10 percent from the previous three-month period ending in June.
Source: Reuters
Bankers said state-run Vietcombank, which handles around 30 percent of Vietnam's trade payments, boosted its rates on dollar deposits with terms from six months to 60 months by between 0.1 and 0.25 of a percentage point.
Vietcombank, the country's third-largest lender by assets, has offered 4.65 percent for six-month deposits from July 6, up from 4.4 percent previously, while its rate for 12-month deposits went up to 5 percent from 4.85 percent.
From July 6, partly private Phuong Nam Bank also raised its dollar savings rates by 0.5 percentage point, the bank said.
Dollar rates in Vietnam have thus risen to between 4.2 percent and 5.3 percent in the past month, from 4-4.7 percent earlier.
Vietnam cut import tariffs on many goods following its WTO accession in January and importers have increased their purchases to meet domestic consumption.
Meanwhile, rates on dong deposits have eased slightly.
Vietnam's four big lenders, including Vietcombank, quoted overnight lending rates on the dong at 4-5 percent on Monday versus 4.5-5.0 percent last Monday.
The range on six-month rates also widened to 7.8-8.7 percent, against 8.4-8.7 percent two weeks ago.
But bankers said demand for dong funds would rise in the next few months as the state poured money into key projects in ship building, transport and energy. The Planning and Investment Ministry has forecast Vietnam would boost investment for development to 118 trillion dong ($7.3 billion) between July and September, up 10 percent from the previous three-month period ending in June.
Source: Reuters
Thursday, July 12, 2007
Forex trade, dong interest rates stable
Dollar/dong trading continued to be stable in the first week of the month in line with the official rate announced daily by the State Bank of Vietnam.
Both official and market rates have been reported at around VND16,130 per dollar. Importers are enjoying a zero swap point on the dollar/dong pair for tenors up to three weeks and just a few dongs as premium forward point for one-month tenor.
Regarding the county's trade balance issue, authorities have forecast a huge trade deficit, at around US$8bil, toward the year-end given that the first half's figure hit a record high of US$4.78bil.
The country has been spending lots of its foreign currencies built up from both FDI and FII flows for big projects' machinery and equipment imports.
It is reported the Vietnamese Government has decided to review the timetable for initial public offerings (IPOs) by big five State-owned banks and some giant companies this year to avoid a boost of supply that could hurt the local stock market.
IPOs by the five State-owned banks this year will be followed by several major State-run firms such as Electricity of Vietnam, Vinaphone, MobiFone and Vietnam Airlines next year and they could lead to stock prices declining from the market.
Vietcombank plans to offer its shares to the public in August 2007 together with the Mekong Delta Housing Development Bank.
Incombank plans its IPO in October 2007 and BIDV is projected to offer shares within the last quarter of this year while Agribank will launch an IPO in August next year.
The country's stock index has risen 34% so far this year, closing at 1,010.53 points by the end of last week.
The first week of July started with relatively stable Vietnam dong interest rates. The opening overnight rate on Monday offered on the inter-bank market was about 5%, higher than the closing rate of the previous week.
However, the overnight rate has steadily declined since then and reached 4.4% on July 9. Other tenors also had similar changes, which are larger for shorter tenors and not significant for six months and above.
These changes are 0.4% for one and two months, and 0.2% for three months. These declines right at the beginning of the month suggested that liquidity in the banking system remained healthy.
In the first week of July, the amount of dong withdrawals by the State Bank of Vietnam continued to be at a significant level. There was VND10.5tril taken out of the system via its open market operations and VND500bil via its weekly auctions. Once again, it proves that the dong is still in excess in the banking system.
News reports say interest rates for dollar deposits have firmed up slightly as demand for the greenback from importers is rising.
It is reported Vietnam's growing trade deficit underlined demand from importers for dollars to pay bills.
Some local commercial banks have raised their deposit rates by five to 20 percentage points per annum to meet increasing corporate demand for dollar borrowing.
Source: VNE
Both official and market rates have been reported at around VND16,130 per dollar. Importers are enjoying a zero swap point on the dollar/dong pair for tenors up to three weeks and just a few dongs as premium forward point for one-month tenor.
Regarding the county's trade balance issue, authorities have forecast a huge trade deficit, at around US$8bil, toward the year-end given that the first half's figure hit a record high of US$4.78bil.
The country has been spending lots of its foreign currencies built up from both FDI and FII flows for big projects' machinery and equipment imports.
It is reported the Vietnamese Government has decided to review the timetable for initial public offerings (IPOs) by big five State-owned banks and some giant companies this year to avoid a boost of supply that could hurt the local stock market.
IPOs by the five State-owned banks this year will be followed by several major State-run firms such as Electricity of Vietnam, Vinaphone, MobiFone and Vietnam Airlines next year and they could lead to stock prices declining from the market.
Vietcombank plans to offer its shares to the public in August 2007 together with the Mekong Delta Housing Development Bank.
Incombank plans its IPO in October 2007 and BIDV is projected to offer shares within the last quarter of this year while Agribank will launch an IPO in August next year.
The country's stock index has risen 34% so far this year, closing at 1,010.53 points by the end of last week.
The first week of July started with relatively stable Vietnam dong interest rates. The opening overnight rate on Monday offered on the inter-bank market was about 5%, higher than the closing rate of the previous week.
However, the overnight rate has steadily declined since then and reached 4.4% on July 9. Other tenors also had similar changes, which are larger for shorter tenors and not significant for six months and above.
These changes are 0.4% for one and two months, and 0.2% for three months. These declines right at the beginning of the month suggested that liquidity in the banking system remained healthy.
In the first week of July, the amount of dong withdrawals by the State Bank of Vietnam continued to be at a significant level. There was VND10.5tril taken out of the system via its open market operations and VND500bil via its weekly auctions. Once again, it proves that the dong is still in excess in the banking system.
News reports say interest rates for dollar deposits have firmed up slightly as demand for the greenback from importers is rising.
It is reported Vietnam's growing trade deficit underlined demand from importers for dollars to pay bills.
Some local commercial banks have raised their deposit rates by five to 20 percentage points per annum to meet increasing corporate demand for dollar borrowing.
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
Banks bank on property
The majority of commercial banks still rely on real estate as collateral assets for providing loans to small- and medium-sized enterprises.
The IFC, the World Bank’s private sector arm and the Vietnam Bankers’ Association, recently completed a survey of lending practices showing that 93 per cent of banks prefer property as collateral for commercial loans.
Most businesses assets, especially for small- and medium-sized enterprises (SMEs), are usually movable.
Sin Foong Wong, IFC’s country manager for Vietnam, said: “Better access to credit is crucial to achieve more widespread business growth in Vietnam, particularly for SMEs that now generate 60 per cent of GDP.
“Most of these firms cannot finance their operations through formal means because they cannot meet the collateral requirements of Vietnam’s financial institutions. Currently, Vietnamese banks rarely lend without property as collateral,” he said.
According to the survey, SMEs’ moveable assets which are worth billions of dollars, could be put to productive use and contribute to economic growth if businesses could use their assets to secure the financing they need to upgrade and expand.
To address this challenge the Ministry of Justice, with the IFC, Mekong Private Sector Development Facility (IFC-MPDF), together with the World Bank’s Foreign Investment Advisory Service (FIAS) has worked for the past year to improve the legal framework for asset based lending.
According to experts, as experience with other reforms shows, effective implementation was needed to maximise impact.
This includes computerising National Registration Agency operations for secured transactions and educating financial institutions about the reforms and how to profit from asset based lending.
Nguyen Thuy Hien, National Registration Agency director general for secured transactions (NRAST), said: “Vietnam needs to complement the legal reforms with an effective collateral registry. This will give financial institutions the quick and accurate information they need to make good lending decision.”
“Having this information available on an easy-to-access secure website will greatly enhance information flows, and make it easier for all parties involved,” she said.
NRAST is an institution under the Ministry of Justice, set up in 2001, with the objectives of undertaking administrative functions related to secured transactions (developing policy and a legal framework) and directly managing the operations of the registration agency for secured transactions, including leasing, sales with retention of ownership, and sales of the right to collect debts.
After nearly four years of operating, the NRAST has registered almost 15,000 secured transactions. Nearly 900 bank head offices and branches have registered as “regular clients” with the registry.
Source: VNE
The IFC, the World Bank’s private sector arm and the Vietnam Bankers’ Association, recently completed a survey of lending practices showing that 93 per cent of banks prefer property as collateral for commercial loans.
Most businesses assets, especially for small- and medium-sized enterprises (SMEs), are usually movable.
Sin Foong Wong, IFC’s country manager for Vietnam, said: “Better access to credit is crucial to achieve more widespread business growth in Vietnam, particularly for SMEs that now generate 60 per cent of GDP.
“Most of these firms cannot finance their operations through formal means because they cannot meet the collateral requirements of Vietnam’s financial institutions. Currently, Vietnamese banks rarely lend without property as collateral,” he said.
According to the survey, SMEs’ moveable assets which are worth billions of dollars, could be put to productive use and contribute to economic growth if businesses could use their assets to secure the financing they need to upgrade and expand.
To address this challenge the Ministry of Justice, with the IFC, Mekong Private Sector Development Facility (IFC-MPDF), together with the World Bank’s Foreign Investment Advisory Service (FIAS) has worked for the past year to improve the legal framework for asset based lending.
According to experts, as experience with other reforms shows, effective implementation was needed to maximise impact.
This includes computerising National Registration Agency operations for secured transactions and educating financial institutions about the reforms and how to profit from asset based lending.
Nguyen Thuy Hien, National Registration Agency director general for secured transactions (NRAST), said: “Vietnam needs to complement the legal reforms with an effective collateral registry. This will give financial institutions the quick and accurate information they need to make good lending decision.”
“Having this information available on an easy-to-access secure website will greatly enhance information flows, and make it easier for all parties involved,” she said.
NRAST is an institution under the Ministry of Justice, set up in 2001, with the objectives of undertaking administrative functions related to secured transactions (developing policy and a legal framework) and directly managing the operations of the registration agency for secured transactions, including leasing, sales with retention of ownership, and sales of the right to collect debts.
After nearly four years of operating, the NRAST has registered almost 15,000 secured transactions. Nearly 900 bank head offices and branches have registered as “regular clients” with the registry.
Source: VNE
Tuesday, July 03, 2007
Can banks attract capital by raising interest rates?
Banks have to raise US$ deposit interest rates in order to attract more capital. However, the move has not brought the desired effect as the capital flowing into banks remains low.
Some ten commercial banks have decided to raise the interest rates on US$ deposits by 0.05% per annum on average for short-term deposits, and 0.2% for longer-term ones. The rates offered by some banks for 12-month term deposits have soared to 5.05% per annum and for 24-month term deposits to 5.25% per annum.
With the new interest rates, the big gap between the interest rates of US$ and VND deposits has been narrowed. However, the US$ deposit interest rate increase seems to remain unattractive to depositors.
On the afternoon of June 30, a reporter learned from a bank that after receiving remitted money from abroad many people changed received dollars into VND and then made VND deposits at the bank. Despite the increased US$ deposit interest rate, the profit that the US$ deposits can bring is just equal to half of what can be brought about by VND deposits.
If you have $1,000 and deposit this sum at banks, you will get VND800,000 after one year, while if you sell this sum to get VND and deposit in VND, the profit you will get after one year is double.
That explains why the growth rate of mobilised US$ capital in HCM City in the last time was still lower than the VND capital. According to the HCM City Branch of the State Bank of Vietnam, in the first six months of the year, VND mobilised capital increased by 42% while US$ capital increased by 17.5% only. Meanwhile, US$ outstanding loans grew more (27%) than VND loans (24.7%).
An expert said that several bankers were now attempting to push US$ deposit interest rates closer to the VND deposit interest rates. He said that with the CPI growth rate of 5.2% in the first six months of the year, it was unprofitable to make deposits with the current interest rates.
Several reasons can be cited to explain the increase of US$ deposit interest rates. The central bank, in an effort to raise foreign currency reserves, has bought some $7bil worth of foreign currencies in the first six months of the year. The move has helped withdraw a big volume of foreign currencies from the market, thus making the VND revaluate by 0.15% against the greenback.
Meanwhile, the supply of foreign currencies on the inter-bank market is not sufficient to meet the demand from enterprises. Commercial banks, which want to mobilise more capital in foreign currencies, have to raise the offered interest rates.
However, the interest rate increase has put banks in a bind. As the cost of capital mobilisation increases by 0.2%, banks will have to raise lending interest rates. An official from a bank said that it was very difficult to persuade enterprises to accept higher lending interest rates.
The official said that his bank dare not impose higher interest rates on traditional and VIP clients.
Source: VNE
Some ten commercial banks have decided to raise the interest rates on US$ deposits by 0.05% per annum on average for short-term deposits, and 0.2% for longer-term ones. The rates offered by some banks for 12-month term deposits have soared to 5.05% per annum and for 24-month term deposits to 5.25% per annum.
With the new interest rates, the big gap between the interest rates of US$ and VND deposits has been narrowed. However, the US$ deposit interest rate increase seems to remain unattractive to depositors.
On the afternoon of June 30, a reporter learned from a bank that after receiving remitted money from abroad many people changed received dollars into VND and then made VND deposits at the bank. Despite the increased US$ deposit interest rate, the profit that the US$ deposits can bring is just equal to half of what can be brought about by VND deposits.
If you have $1,000 and deposit this sum at banks, you will get VND800,000 after one year, while if you sell this sum to get VND and deposit in VND, the profit you will get after one year is double.
That explains why the growth rate of mobilised US$ capital in HCM City in the last time was still lower than the VND capital. According to the HCM City Branch of the State Bank of Vietnam, in the first six months of the year, VND mobilised capital increased by 42% while US$ capital increased by 17.5% only. Meanwhile, US$ outstanding loans grew more (27%) than VND loans (24.7%).
An expert said that several bankers were now attempting to push US$ deposit interest rates closer to the VND deposit interest rates. He said that with the CPI growth rate of 5.2% in the first six months of the year, it was unprofitable to make deposits with the current interest rates.
Several reasons can be cited to explain the increase of US$ deposit interest rates. The central bank, in an effort to raise foreign currency reserves, has bought some $7bil worth of foreign currencies in the first six months of the year. The move has helped withdraw a big volume of foreign currencies from the market, thus making the VND revaluate by 0.15% against the greenback.
Meanwhile, the supply of foreign currencies on the inter-bank market is not sufficient to meet the demand from enterprises. Commercial banks, which want to mobilise more capital in foreign currencies, have to raise the offered interest rates.
However, the interest rate increase has put banks in a bind. As the cost of capital mobilisation increases by 0.2%, banks will have to raise lending interest rates. An official from a bank said that it was very difficult to persuade enterprises to accept higher lending interest rates.
The official said that his bank dare not impose higher interest rates on traditional and VIP clients.
Source: VNE
Monday, July 02, 2007
Prices increase, depositors depressed
With the currently offered deposit interest rates and the CPI (consumer price index) growth rate of 5.2% by the end of June 2007, depositors are currently struggling to make a profit.
Mrs Van, a staff of a financial company, said that she made a deposit at a bank in January 2007 with the interest rate of 0.75% per month. She estimated that she could get the profit of 4.75% of the deposit sum. However, as the CPI grew by 5.2% in the first six months, Mrs Van, in fact, could not make any profit.
In this case, the interest rate offered by the bank is called ‘the minus (-) interest rate’.
Commenting about the minus interest rate, an economist said that in principle banks must ensure real profit for depositors with the ‘plus (+) interest rate’ policy in order to attract more capital to the banking system (the offered interest rate should take the CPI growth rate into consideration).
The economist said that banks were now paying special attention to mobilising more capital in foreign currencies in order to meet the increased demand from enterprises. Banks have to raise the offered interest rates for foreign currencies deposits by 0.08% per annum (short-term deposits), and 0.1% per annum (long-term deposits) on average, compared to those in March 2007.
In June alone, at least four banks announced interest rate increases. Vietcombank (HCM City branch) led the movement, announcing a new interest rate commencing on June 8 (5% for 12-month term and 4.75% for 9-month term deposits). On June 20, EAB also raised the interest rates on deposits of all terms (5.25% for 12-month, 5.1% for 9-month term deposits). Just five days later, Sacombank announced it would raise offered interest rates by 0.05-0.2% per annum. Eximbank also jumped onto the bandwagon by announcing on June 29 that it would raise interest rates on US$ deposits by 0.05-0.2%.
Though the interest rates for US$ deposits are increasing, experts don’t think that people will begin making deposits in US$ instead of VND.
“One should not think that he can avoid exchange rate risks by selling VND and depositing in US$. Once he needs to spend money, he will still have to sell US$ to get VND, which means he will still be subject to the exchange rate fluctuation,” an analyst said.
In fact, the members of the Vietnam Banking Association in April reached an agreement on lowering deposit interest rates. However, many banks have ignored the agreement, saying that they still needed to consider the issue thoroughly, especially as the inflation rate remained high, and that banks should ensure real profit for depositors.
Sacombank has just announced it will lower interest rates on all terms of deposits, commencing from June 26 (0.76% per month for 12-month term, and 0.745% for 9-month term deposits). However, in a different move, Eximbank on June 29 announced it would raise deposit interest rates with the sharpest increases for 18-month term deposits and longer.
The director of a bank reiterated that the central bank had initiated the double compulsory reserve rate in an effort to reduce bank’s usable capital and control credit growth.
The move by the central bank will put a lot of pressure on banks, forcing them to reduce deposit interest rates and raise lending interest rates, he said.
Source: VNE
Mrs Van, a staff of a financial company, said that she made a deposit at a bank in January 2007 with the interest rate of 0.75% per month. She estimated that she could get the profit of 4.75% of the deposit sum. However, as the CPI grew by 5.2% in the first six months, Mrs Van, in fact, could not make any profit.
In this case, the interest rate offered by the bank is called ‘the minus (-) interest rate’.
Commenting about the minus interest rate, an economist said that in principle banks must ensure real profit for depositors with the ‘plus (+) interest rate’ policy in order to attract more capital to the banking system (the offered interest rate should take the CPI growth rate into consideration).
The economist said that banks were now paying special attention to mobilising more capital in foreign currencies in order to meet the increased demand from enterprises. Banks have to raise the offered interest rates for foreign currencies deposits by 0.08% per annum (short-term deposits), and 0.1% per annum (long-term deposits) on average, compared to those in March 2007.
In June alone, at least four banks announced interest rate increases. Vietcombank (HCM City branch) led the movement, announcing a new interest rate commencing on June 8 (5% for 12-month term and 4.75% for 9-month term deposits). On June 20, EAB also raised the interest rates on deposits of all terms (5.25% for 12-month, 5.1% for 9-month term deposits). Just five days later, Sacombank announced it would raise offered interest rates by 0.05-0.2% per annum. Eximbank also jumped onto the bandwagon by announcing on June 29 that it would raise interest rates on US$ deposits by 0.05-0.2%.
Though the interest rates for US$ deposits are increasing, experts don’t think that people will begin making deposits in US$ instead of VND.
“One should not think that he can avoid exchange rate risks by selling VND and depositing in US$. Once he needs to spend money, he will still have to sell US$ to get VND, which means he will still be subject to the exchange rate fluctuation,” an analyst said.
In fact, the members of the Vietnam Banking Association in April reached an agreement on lowering deposit interest rates. However, many banks have ignored the agreement, saying that they still needed to consider the issue thoroughly, especially as the inflation rate remained high, and that banks should ensure real profit for depositors.
Sacombank has just announced it will lower interest rates on all terms of deposits, commencing from June 26 (0.76% per month for 12-month term, and 0.745% for 9-month term deposits). However, in a different move, Eximbank on June 29 announced it would raise deposit interest rates with the sharpest increases for 18-month term deposits and longer.
The director of a bank reiterated that the central bank had initiated the double compulsory reserve rate in an effort to reduce bank’s usable capital and control credit growth.
The move by the central bank will put a lot of pressure on banks, forcing them to reduce deposit interest rates and raise lending interest rates, he 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
Friday, June 15, 2007
US dollar appreciates in Viet Nam
The domestic market has seen some consolidation of the US dollar against the Vietnamese dong in recent days, running counter to the trend of decreasing prices in the gold market.
On June 14, the US dollar hit a peak of almost 16.125 VND on the unofficial market. The dollar was bought at 16,085 VND and sold at 16,120 VND by the Bank for Foreign Trade of Viet nam.
The situation has forced banks to increase savings interest rates on the US dollar.
The Ha Noi Housing Bank (Habubank) raised the annual rates by between 0.05% and 0.5% for all terms of savings deposits.
The Vietcombank branch in HCM City has also adjusted its savings interest rates to 5% a year for the 12-month term, which normally stood at between 4.6 and 4.9% before the recent surge in the US dollar value.
Source: VNA
On June 14, the US dollar hit a peak of almost 16.125 VND on the unofficial market. The dollar was bought at 16,085 VND and sold at 16,120 VND by the Bank for Foreign Trade of Viet nam.
The situation has forced banks to increase savings interest rates on the US dollar.
The Ha Noi Housing Bank (Habubank) raised the annual rates by between 0.05% and 0.5% for all terms of savings deposits.
The Vietcombank branch in HCM City has also adjusted its savings interest rates to 5% a year for the 12-month term, which normally stood at between 4.6 and 4.9% before the recent surge in the US dollar value.
Source: VNA
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
Tuesday, February 27, 2007
Strong demand for Vietnam Dong
Short-term Vietnamese dong lending rates eased on the interbank market after a long national holiday but are expected to firm in the coming weeks on strengthening loan demand, bankers said on Monday.
Four state-run banks, Vietnam's key lenders, offered overnight dong loans at a range of 5.0-6.0%, down from 5.5-6.5% two weeks ago and similar to the rates prior to Tet, the Lunar New Year festival that ended last week.
But rates on six-month loans also eased to a range of 8.2-8.6% from 8.2-9.0% two weeks ago.
The short-term dong rates rose in early February as companies sought funds to pay year-end bonuses to employees and to clear debts in the weeks leading to Tet.
"We expect very strong demand for dong loans from March especially those for long-term capital investment and infrastructure from both the state and private setors" a banker in Hanoi said.
Major projects include a scheme by the Transport Ministry to invest 20 billion US$to upgrade national roads and bridges in the next four years and a string of new power plants and grids.
Source: Reuters
Four state-run banks, Vietnam's key lenders, offered overnight dong loans at a range of 5.0-6.0%, down from 5.5-6.5% two weeks ago and similar to the rates prior to Tet, the Lunar New Year festival that ended last week.
But rates on six-month loans also eased to a range of 8.2-8.6% from 8.2-9.0% two weeks ago.
The short-term dong rates rose in early February as companies sought funds to pay year-end bonuses to employees and to clear debts in the weeks leading to Tet.
"We expect very strong demand for dong loans from March especially those for long-term capital investment and infrastructure from both the state and private setors" a banker in Hanoi said.
Major projects include a scheme by the Transport Ministry to invest 20 billion US$to upgrade national roads and bridges in the next four years and a string of new power plants and grids.
Source: Reuters
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