Borrowing costs face upward pressure
By Compiled by Thien Ly
Interest rates increased sharply in the interbank market in the last few weeks of December, revealing a huge demand for liquidity at banks.
According to the State Bank of Viet Nam, in the last week of the month, dong transactions on the interbank market were worth VND128.47 trillion (US$6.12 billion), most of them for overnight (48 per cent) or one week (29 per cent).
But the interest rates on both dong and US dollar borrowings have risen sharply. It was 0.79 percentage points up from the previous week for dong loans at 2.23 per cent per year.
But they did not come as any surprise since a rising trend had begun several weeks earlier.
Demand for cash often increases at the end of the year as people need more money to do shopping.
Besides this, the central bank has also been pumping money through open market operations (OMO).
By December 27 it had injected VND14.73 trillion ($701.43 million) during the month. In previous months the flow had been negative to the extent of VND102 billion ($4.86 million).
Clearly, the central bank is ready to intervene in the market to prop up the banking system's liquidity and keep the inter-bank market stable.
Not surprisingly, banks have also begun a new race to increase deposit interest rates.
Sacombank offers the ceiling interest rate of 7 per cent – applicable for deposits of up to six months – for one to five months, and 7.3 per cent for six to 11 months.
Asia Commercial Bank offers 6.9 per cent for deposits of one to two months. Eximbank offers 8 per cent for a one-year term.
Some small banks in Ha Noi are ready to offer 9 per cent for a year on deposits of VND200 million ($9,529) or more.
With the deposit rates rising again, lending rates are likely to be under pressure too this year.
A senior economist said besides the rising deposit interest rates there are also other reasons that would keep loan interest rates from falling in 2014.
They include a predicted inflation rate of around 7 per cent, meaning the coupon rates on Government bonds have been fixed at a level that banks find attractive.
The US dollar is likely to strengthen, affecting the interest rates and exchange rates, he added.
Foreign ownership caps
On January 3 the Government issued Decree No 01/2014/ND-CP on foreign investors' stakes in Vietnamese credit institutions, increasing the maximum ownership by a foreign strategic investor by 5 percentage points to 20 per cent.
Together foreign investors can own up to 30 per cent of banks and other financial institutions.
The Decree, which takes effect on February 20, also increases the stakes a foreign institutional investor can own by 5 percentage points to 15 per cent.
It continues to cap a foreign individual's ownership at 5 per cent.
Strategic investors are those that are not mere financial investors but are also involved with the management of the lender.
But to restructure weak banks, the Government could approve a higher limit on a case-by-case basis.
However, critics do not think the loosening will have much impact in the short term since most lenders have little room to sell shares to foreigners.
ABBank has sold 20 per cent of its shares to Malaysia's Maybank and 10 per cent to IFC.
France's BNP Paribas, Australia's Commonwealth Bank, and HSBC own a 20 per cent stake respectively in OCB, VIB, and Techcombank.
On the flip side, some banks want to sell shares to foreign investors but find it difficult to find partners especially since their operations are opaque.
Some independent analyst say that the share ownership percentage of foreigners might have been increased but the change is so modest that few banks have the opportunity to sell more shares to foreign investors.
In addition, the ownership caps for foreigners are too small to attract investment in weak banks since they would not allow foreign investors to control or turn them around.
Analysts said the central bank should allow weak banks further hikes in foreign ownership or even sell out to foreign investors.
Light at end of tunnel for city property market
In 2013, though the HCM City real estate market remained mired in difficulties, liquidity improved with more than 5,000 apartments being sold.
Work resumed on many long-delayed housing projects.
One reason for the improvement in the situation was the change in buyers' thinking. In the past people who wanted to buy property would often wait for prices to fall steeply. But last year, more than prices, people were interested in the quality of projects, developers' reputation, and, especially, construction progress.
The bottoming of the real estate market is also attributed to other reasons like the Government's policies meant to resolve the industry's difficulties.
The Government launched a VND30 trillion ($1.42 billion) housing stimulus package in May to encourage construction and purchase of social housing, giving an impetus to the stagnant real-estate sector.
The HCM City administration too helped with changes to its policies. For instance, it allows people who buy apartments to directly approach authorities to get the certificate of land use, known as the "red book", instead of depending on developers.
The city has also decided to issue title deeds to people who had bought houses without proper papers but which are not involved in other problems and do not hinder the government's zoning plans.
These new regulations are of great significance for the property market since the city has hundreds of thousands of houses without proper papers, meaning that with the new regulations the markets will be more transparent, thus encouraging people to buy and sell without fear.
Recent rumours that the Government has agreed to loosen regulations for foreigners to buy housing are also expected to create an impetus for the market.
The Ministry of Construction has been allowed to table the revised Housing Law.
The changes in the law are expected to allow mobilisation of greater funds, technology, and expertise to help the development of the country and the market.
One of the important amendments would offer more favourable conditions for Vietnamese born abroad and foreign organisations to own property in Viet Nam.
This could ultimately include all foreigners, meaning more and more people will be allowed to own land.
Foreigners are also likely to be permitted to buy houses and own them for 50 to 70 years, the normal period for ownership in Viet Nam.
The new regulations are expected to offer a solution to some of the problems faced by the real-estate market, especially in the high-end apartment segment, this year.
The biggest advantage for the market is that housing demand is massive and people have realised that housing prices are not likely to go down much from here; thus, they are ready to buy if they find a proper house or apartment.
The upshot of all this is that capable developers who can continue with their projects and finish them on schedule will do very well; those who cannot will be weeded out from the market. — VNS