Banking Vietnam

As previously predicted, commercial banks, encouraged by the goods news about the slow CPI increase of 1.56% in August and the petrol price decrease by VND1,000/litre, have been slashing interest rates further.

Observers say the interest rates of long-term deposits have been slashed to 17.5% on average from the previous level of 18%.

In the first two weeks of August 2008, SeABank two times slashed VND and US$ interest rates. The highest interest rate offered by the bank is now 18.36% for 3-month term deposits.

All commercial banks, both state-owned and joint-stock banks, have made interest rate cuts in recent days after they heard the good news about the low CPI increase in August, macroeconomic stability and the improvement of the monetary market.

Some banks have stopped mobilising very short-term capital (1-2-3 week term deposits), or are offering relatively low interest rates on these deposits at 13-15.5% per annum. Meanwhile, the highest rate for US$ deposits has been lowered to over 6% per annum.

On August 23, East Asia Bank cut interest rates again for long-term deposits. The bank’s rates for 3-12-month term deposits are now at 18-18.1% per annum, much lower than the highest peak the bank once applied at 18.5% per annum. Meanwhile, the rates for 13-36-month term deposits are hovering around 17.5-17.6% per annum.

Tran Phuong Binh, General Director of EAB Bank, said that if CPI is restrained at low levels in the next months, and the monetary market stabilises, banks all will consider lowering deposit interest rates in order to save up the capital mobilisation cost.

Prior to that, on August 18, Sacombank announced new interest rates for VND, US$ deposits and gold deposits. The highest interest rate the bank is applying is approximately 18% per annum for VND deposits, while the rate for US$ deposits is 5.5% (13-month term) and 3.6% for gold deposits.

Bankers said that the deposit interest rates will not see big changes in the last months of the year, with the highest peak at 18% per annum.

Vo Van Chau, General Director of OCBank, said that banks, especially small ones, had to mobilise capital at high costs in the first seven months of the year, therefore, they will think of slashing interest rates in the upcoming months to offset the high costs.

Chau said that the so-called ‘running money’ is not occurring at this moment (money going from one bank to another as depositors withdraw money from one bank to deposit in another that offers higher interest rates).

He said that depositors have realised that they will not get profit by taking back money from banks before the maturity date.

According to the HCM City Statistics Office, the outstanding loans decreased by 2.5% in August over the previous month, while the mobilised capital increased by 2.7% over July. HCM City Banks had mobilised VND542,000bil by early August, up by 11.3% over the beginning of the year.

Source: DTCK

The Government issued on August 19 a decree regulating the functions, rights, responsibilities and structure of the State Bank of Vietnam (SBV).

Under Decree No 96/2008/ND-CP, SBV is considered as a ministerial agency, and is tasked to manage monetary, banking and other relevant public services.

It also assigns the central bank 27 missions and rights that include building national monetary policy and submitting them to the Government and the National Assembly, as well as managing interest rates, exchange rates, administrative commands and open market operations to implement national monetary policy.

The SBV is also in charge of refinancing capital and payment instruments in the short term for the benefit of the economy.

The central bank is allowed to grant and withdraw operating licenses of credit institutions, except some special cases dictated by the Prime Minister, and to set up international payment balances and manage international loans.

The Government also ordered the SBV to be responsible for printing, casting, preserving and transporting money, as well as issuing money, withdrawing, destroying and replacing money.

In terms of structure, the central bank has 19 supporting organisations and five agencies underneath it: the Institute for Banking Strategy, the Credit Information Centre, the Banking Times and the School for Training Banking Staff.

Source: VNA

Over 500 experts from 50 countries, including more than 100 microfinance practitioners from Vietnam, are participating in the second Asia Microfinance Forum 2008 which opened in Hanoi on August 26.

The event is an initiative of The Banking With the Poor Network (BWTP), organised by the Foundation for Development Co-operation (FDC) and funded by Citi Foundation, in association with the the PlaNet Finance Group and the European Union in collaboration with the State Bank of Vietnam.

The forum entitled “Microfinance in the 21st century - Future Trends and Opportunities” provides a significant event for the development of microfinance and a good opportunity for participants to exchange experience and discuss common issues in order to come up with new approaches and initiatives for the development of the region’s microfinance sector, affirmed Ms Truong My Hoa, former vice president of Vietnam in her opening speech at the forum.

BWTP’s mission is to enhance the delivery of financial services and share best practices among microfinance organisations across the region. NGOs, local and foreign banks and investors are all exploring ways of packaging and delivering financial services to the poor and we want this conference to showcase the initiatives that could meet the increasing demand for microfinance services, both in Vietnam and across Asia, said Chandula Abeywickrema, Chairman of BWTP, Asia’s only regional microfinance network.

Delegates to the four-day forum will focus on challenges and innovations that will have the greatest impact on microfinance in coming decades and discuss implications for the microfinance sector industry in Asia.

Key themes to be covered at the conference include the challenges for increasing finance and investment in the sector, the need for the poor to build savings and assets, the role of microfinance networks, new technologies available to help achieve greater financial inclusion, and how microfinance can contribute to environmentally sustainable development in the developing world.

Citi’s support of the microfinance sector started over 25 years ago. Citi Foundation grants support to the development of thousands of microfinance institutions so that they can provide low-income individuals with greater access to financial services, and evolve into commercially self-sustaining organisations.

Over the last decade, the City Foundation has contributed over US$60 million to support 250 microfinance institutions, networks and micro-enterprise programmes in 55 countries.

City has a long term commitment to support the development of Vietnam and the growth of its microfinance sector, said Piyush Gupta, CEO, South East Asia Pacitfic, Citi at a press briefing today.

Citi established its first microfinance partnership in Vietnam in 2001 with a Citi Foundation grant to Save the Children US to support its microfinance programme in Thanh Hoa province. Citi Vietnam has given VND 3.3 billion (US$168,000) to enable more than 10,000 women from low-income households in Thanh Hoa to start their own micro-enterprises. Today, the programme operates successfully as the Thanh Hoa Poor Women’s Support Fund and is considered one of the few examples of microfinance programmes in Vietnam that has overcome many challenges to become financially sustainable.

Source: Nhan Dan

In the last 12 months, the purchase volumes off foreign investors have always been higher by 30-50% than the sale volumes, which has raised the question among domestic investors of why foreign investors have so much money to buy.

Buying with old, not new capital

According to the HCM City Stock Exchange, in the period from September 2007 to August 25, 2008, foreign investors purchased over $160mil a month, while sold $90mil a month. The purchases by foreign investors, especially in the months when electronic boards were all lit red, showing the price decreases of shares, proved to be the only thing that helped create liquidity for the market.

When domestic investors stopped making transactions as the purchases could not bring them profit when the market fell deeply, foreign investors kept purchasing steadily. This has sparked the question among domestic investors about the sums of money foreign investors have poured into the market.

According to Bui Cong Giang, General Director of Anpha Capital, the money for the transactions partially came from the $6.2bil worth of portfolio investment that flowed to Vietnam in 2007. Most of the investment funds did not have opportunities to disburse capital when the market was hot and share prices were high. However, when the market fell deeply later, the funds took full advantage of this to use that money. They restructured their investment portfolios, sold bad share items and bought good ones.

Statistics released by Mekong Capital investment fund showed that there are 58 investment funds operational in Vietnam, both domestic and foreign, including 20 foreign ones. In the first six months of the year, except several funds which mobilised more capital, Vietnam’s market did not see any new face.

According to Tran Quoc Toan, Deputy Chairman of the Government Office, the total indirect foreign investment in Vietnam in the first seven months of the year was $700mil.

About the new sum of money, the deputy general director of an investment fund said that the new capital proved to be modest, just equal to 2-3% of the scale of the market at the moment, when the market made up 30% of GDP ($20bil).

Will they continue purchasing?

Experts do not see the high possibility of high portfolio investment flying into Vietnam in the time to come. The research team of the Bank for Investment and Development of Vietnam (BIDV) said that the World Bank has predicted the sum of $2bil for this year.

According to the report about the operation of investment funds in emerging markets by LCG Rothschild, by August 4, the day when the VN Index gained 439.41 points and the VND/US$ exchange rate was VND16,740/US41, the yield to maturity (YTD) of the investment funds that joined Vietnam’s market was - 53.9%. Meanwhile, the net asset value (NAV) of Indochina Capital Vietnam Holdings was - 44%, while the figures were - 60% for PXP,  - 21.5% for Vietnam Equity Holding, - 37.8% for Vietnam Opportunity Fund, and - 42% for Blackhorse Enhanced Vietnam.

This shows that, according to the deputy director, the lower NAV will prompt investment funds to focus on looking for good share items for their investment portfolios as the top priority. They will not think of raising more funds at this moment, when Vietnam’s national economy, though better off, still does not show clear signs of attractive opportunities.

“The trading activities by foreign investors will not see many changes in the time to come if compared to the first six months of the year,” said the Director of a French investment fund.

Bui Cong Giang also said that the investment fund he is managing now focuses on restructuring companies, while he still does not have any plans to raise new funds.

Source: Saigon Tiep thi

Vietnam has attracted US$47.15 billion in foreign direct investment including both new registered capital and additional investment by available FDI projects in the first eight months of this year, up 4.5 times compared to the same period last year, the Ministry of Planning and Investment’s Department of Foreign Investment has announced.

In August alone, 118 projects with a total registered capital of US$1.8 billion have been licensed, bringing the total number of new projects licensed so far this year to 772 with total registered capital of US$46.3 billion, equivalent to 79.2% of number of projects and up five times in registered capital against the same period last year.

In the meantime, a total of 210 available FDI projects have increased their investment by an additional US$833 million.

In the January-August period, FDI enterprises’ total implemented capital has hit US$8 billion, up 42.9% year-on-year.

FDI enterprises have also reported positive performance as their total revenue is estimated at US$30.4 billion, up 33% year-on-year. They have contributed an estimated US$1.4 billion to the State budget, up 33.5% compared to the same period last year.

Source: Nhan Dan

The stock market witnessed sharp increases today on both bourses with a majority of listed stocks traded at ceiling prices as bids were abundant while offers were limited. Investors seemed to be optimistic on news of dropping oil prices, reduced lending interest rates and low consumer price index in August.

The VN-Index of the Ho Chi Minh City stock exchange saw a sharp increase of 21.27 points or 4.03% to approach closely the 500 point mark, at 548.25 points.

Of the total 160 listed stocks on the bourse, there were 154 gainers, of which 142 hit their ceiling prices. Only two stocks dropped and four other stayed unchanged.

A total of over 20 million units were matched via order matching for VND 781 billion and 2.3 million others traded via negotiations worth VND 116 billion.

The northern bourse also shared the same atmosphere with almost all listed stock gaining, a majority of them to the maximum, and the index exceeded the 170 point mark today at it gained 9.13 points or 5.56%, closing at 173.41.

There were only three decliners against 143 gainers, plus one other had no trade. 137 of the 143 gainers closed at ceiling prices.

Investors this session traded 8.2 million units listed on the northern bourse worth VND 352 billion.

Source: Nhan Dan

After nearly one month of consideration, the State Bank of Vietnam finally decided to set the ceiling interest rate for the interbank market – it must not be higher than 150% of the basic interest rate announced by the State Bank.

As such, the ceiling interbank market’s interest rate is 21% for now, as the basic interest rate the central bank announced for August is 14% per annum.

In theory, the new decision will support small banks, which will be able to seek capital at interest rates affordable for them. Moreover, the scenario of the interest rate skyrocketing to 35-40% as was seen in the past will not happen again. In the past, when the monetary market was overly hot and banks were all thirsty for capital, a state-owned bank reportedly could reap fat profit by lending capital equal to 25% of its total assets at exorbitant interest rates.

Nevertheless, analysts have warned that the decision will have negative impacts on the monetary market. A banking expert said that the interest rate should be defined by the supply and demand basis. It would be fair for small and ineffective banks to bear higher interest rates than big and profitable banks for the same loan values. If the ceiling interest rate is set in the interbank market, the classification of banks by bank operation efficiency will not exist.

The existence of the ceiling interest rate in the interbank market will lead to the fact that the market does not have a benchmark which can help assess the level of capital deficiency of the banking system. The said banking expert said that the interest rate limit can be compared to a thermometer which can only measure the coldness of the market, it cannot show how hot the market is.

Analysts have also expressed their concern that the monetary market may become distorted with the decision. If the capital supply becomes seriously short, banks that have profuse capital will not lend capital unless they can get suitable interest rates. It may happen that banks negotiate with each other on providing loans at interest rates higher than the ceiling levels in order to benefit both the lenders and borrowers. If so, the deals will be carried out among banks, which will make the deals uncontrollable.

VietNamNet Bridge 

Every series of international bond issuances by enterprises must have the equivalent value of $200mil at minimum, according to the draft decree on international bond issuance.

The draft decree, which is being compiled by the Ministry of Finance, is expected to be submitted to the government this year.

The issuance of government and corporate bonds in the international market is considered a kind of seeking of commercial loans. Therefore, the government and enterprises only issue bonds to mobilise capital for key national projects, get investment for projects with high efficiency, high solvency. Government bonds can also be issued in order to restructure the government’s debt portfolio.

A bond issuance is only carried out when the international market shows favourable conditions for the issuance to ensure the success of the issuance at reasonable cost.

Enterprises that issue international bonds must take responsibility for the use of the capital mobilised from the bond issuance.

The issuance must obey the current regulations on foreign debt management, foreign currency management, and international laws.

Regarding the value of bond issuances, the draft decree says that every series of international bond issuances by enterprises must have the equivalent value of $200mil at minimum. Moreover, the values must be within the national foreign commercial loan limit set every year. The issuance must have the approval of the Ministry of Finance in writing before it is carried out.

Beneficiaries of the international bond issuance which use the capital mobilised from the issuance must be national key projects or projects with high investment efficiency which have already fulfilled investment procedures in accordance with the laws.

The bond issuers must meet the requirements of the international market in terms of credit rating. They must have bond issuance plans approved by competent agencies.

If enterprises have an urgent demand for capital to implement state investment projects, but do not meet the conditions to issue bonds themselves, they can issue bonds in the international market with the guarantee of the government.

In order to have a bond issuance guaranteed by the government, enterprises have to meet a lot of strict requirements. One of the requirements is that the enterprises must have the credit rating equal or just one grade lower than the national credit rating.

Source: TBKTVN

Lending interest rates during last week saw slight decreases, according to statistics of the State Bank of Vietnam.

Specifically, the lending interest rate for loans in US dollar by State commercial banks reduced by 0.1% a year. The lending interest rates for loans in Vietnam dong by joint stock commercial banks were down by 0.15% to 0.18% a year. For loans in US dollar, the rates offered by joint stock commercial banks dropped by 0.55% to 0.39% a year.

In the meantime, the interest rates for deposits in Vietnam dong stayed still while that for deposits in US dollar declined by 0.22% to 0.4% a year compared to the previous week.

Specifically, interest rate for six-month term deposits in Vietnam dong by State commercial banks is around 17% a year and 17.26% a year for 12 month-term deposits. The rates offered by commercial joint stock banks were 18.04% a year and 17.78% a year, respectively.

Source: Nhan Dan

Analysts have anticipated a low-lending interest rate war among banks which will benefit both businesses and banks. While banks can provide more services with the preferential interest rates, businesses can cut production costs.

Most businesses complain that they cannot access VND loans as the interest rates of 20-21% per annum prove to be unaffordable for them.

Meanwhile, they cannot borrow money in US$, which carries the interest rates of 8-10% per annum only, since the new regulation stipulates that US$ loans can only be given to companies that need dollars to import commodities. Bankers have been racking their brains to find the best solution for businesses.

Eximbank has launched a programme on lending VND at the interest rates for US$ loans, under which companies that make products for export can borrow money from Eximbank at 8.4% per annum, just 60% of the currently applied interest rate for VND loans.

When businesses show export contracts or L/Cs, the bank will disburse VND capital at interest rates for US$ loans so that businesses can purchase materials for making products for export. When businesses get money from the export contracts, they will sell the foreign currencies to the bank at the exchange rates the two sides agreed upon when the banks disbursed the VND capital.

Eximbank initially reserved VND2tril for the programme, of which VND1tril has been disbursed in 3-4-month term loans over the last month. With the programme, businesses can save VND1bil/month on interest payments for every VND100bil worth of loans (they have to pay VND700mil a month instead of VND1.75bil).

According to Truong Van Phuoc, General Director of Eximbank, as businesses are happy with the programme, and always pay debts when due, the bank has decided to raise the credit limit for the programme to VND5tril. Eximbank’s staffs are going to the Cuu Long River Delta in an effort to expand the loaning to farm produce export companies in the area.

The director of a food export company, who asked to remain anonymous, recalled the stories of unsold tra fish and paddies, and said that the products have been left unsold not because of businesses’ lack of capital, but because of the overly high interest rates. The overly high interest rates do not encourage businesses to purchase fish and paddies for storage. It is estimated that businesses have to pay 1.7% a month in interest on the loans they take out to collect materials from farmers. That explains why the State Bank of Vietnam ordered banks to arrange capital for loaning, and commercial banks offered to lend, but businesses have still been keeping away.

Recently, ACB has decided to inject $20mil in a programme to support exports, under which businesses can borrow VND at special interest rates. ACB said that the interest rates of the VND loans are equal to the rates for US$ loans and 70% of the rates for VND loans. The bank has announced it will focus on lending for four main export groups: seafood, woodwork, rice and rubber.

Sources say that other banks are also considering launching new credit products in order to lure more clients. Analysts have anticipated a low-lending interest rate war among banks which will benefit both businesses and banks. While banks can provide more services with the preferential interest rates, businesses can cut production costs.

Source: Tuoi Tre