Thursday, October 27 2016


Edible oil producers import tax cut looms

Update: May, 30/2016 - 09:00

On May 10 the Việt Nam Competition Authority warned that the import tax on crude and refined edible oils, reduced from 3 per cent this month to 2 per cent, would be scrapped altogether in May 2017.

This means that the protective measures the Government has applied since 2013 to safeguard domestic oil producers from rising imports are coming to an end.

In September 2013 the Ministry of Industry and Trade decided to impose a 5 per cent import tax on refined soybean oil and palm oil after an eight-month-long investigation found that the market share of local producers had fallen from 52 per cent in 2009 to 27 per cent in 2012 even as demand went up from 100,000 tonnes to 137,940 tonnes.

Protective measures were put in place against imports.

The investigation was initiated following a demand by the National Corporation for Vegetable Oils, Aromas and Cosmetics of Vietnam (Vocarimex) and seven other producers when oil imports increased sharply.

The complainants said the increase in vegetable oil imports had led to sharp falls in domestic companies’ market share, affecting many of them.

In 2012 Việt Nam imported more than 568,000 tonnes of vegetable oil, and this increased by 5.3 per cent and 11.3 per cent in the next two years.

Meanwhile, the market share of domestic producers plummeted to a mere 11.3 per cent by 2014.

Imports have kept rising, reaching almost 750,000 tonnes, including palm oil (690,000 tonnes), soy oil (5,000 tonnes)  and others (55,000 tonnes) in 2015.

Though the Government imposes protective tariffs, many imported brands like Sailing Boat, Knife, Cooking Kudui, Omely, and Capri are still widely found in supermarket shelves.

The imports mostly come from Malaysia, Indonesia and Singapore.

In 2014 the market share of the State-owned Việt Nam Vegetable Oil Industry Corporation (Vocarimex), a cooking oil giant with four subsidiaries and three associated companies, fell to 4 per cent.  

With its market share falling, the company has to decided to sell a 24 per cent stake to Kinh Đô Corporation and 8 per cent to VPBank Securities.

Vocarimex’s plight shows that no protective measure is enough if domestic producers do not make their own efforts to improve their competitiveness.

Analysts said the biggest problem for the domestic edible oil sector is that 90 per cent of raw materials they use are imported, mainly from Indonesia and Malaysia.

This makes their costs too high, affecting their competitiveness.

The edible oil market now is valued at VNĐ30 trillion (US$1.33 billion) and is growing at 7-9 per cent a year.

The trade ministry estimates that Việt Nam’s consumption of vegetable oils will increase to 16 kilos per capita in 2020 and 18.5 kilos in 2025, which indicates that there is massive potential for investors to exploit.

But if domestic producers do not get over their dependency on imports, the market will be ripe for their foreign rivals to take over.

Dollars drying up as banks park them abroad

Regulating the use of dollars in the banking sector is again in the news after overseas deposits of the greenback by Vietnamese entities, mostly banks, have skyrocketed.

According to the Việt Nam Institute of Economic and Policy Research, the overseas deposits, previously negligible, had surged to $7.3 billion at the end of the third quarter of last year.

This was believed to have been caused by the State Bank of Việt Nam (SBV)’s policy tightening with respect to banks’ foreign currency transactions.

To stabilise the forex market and reduce dollarisation in the economy, the central bank has applied several measures in recent years to prevent speculation in and hoarding of dollars.

One of the most important of them was to ban banks from offering loans to companies in any other currency except the đồng.

Only companies in need of foreign exchange to pay for imports of goods and services are allowed to borrow in dollars.

The central bank also decided to reduce interest on dollar deposits to zero per cent.

These were aimed at making banks switch from accepting dollar deposits and lending them to buying and selling the greenback. 

The efforts have paid off, with the forex rate as well as market becoming rather steady and helping the Government keep a lid on inflation.

But other problems have cropped up.

Since the interest rate was cut to zero, dollar deposits at banks have slumped, threatening their liquidity. 

As a result, many banks have been illegally offering interest of 0.5-1 per cent.

The zero interest rate policy is also blamed for a foreign currency drain as banks that are sitting on large dollar reserves, companies possessing the greenback and even individuals are looking for ways to deposit them abroad to make profits.

This is paradoxical since many companies and even banks lack dollars for their business activities, and are forced to borrow from foreign banks at high interest rates.

Many analysts said that the central bank’s decision to bring down dollar deposit interest rates to zero is not appropriate since the country does not have a foreign currency market where US dollar trading is carried out smoothly and efficiently.

But the fact that some banks park their foreign currencies abroad to enjoy profits irks some, who think “it is not fair”.

But banking experts and the State Bank of Việt Nam dismiss this saying it is the normal practice of banks.

Some analysts called for going back to old policies and allowing banks to mobilise foreign currency deposits and lend them. 

Some others urged the central bank to review and tweak its policies to make them win-win for all concerned.

One of their suggestions was to extend the de-dollarisation roadmap to ease the burden on businesses.

The process has been too rapid in recent times, they said, adding that the central bank should rethink certain aspects, including the zero interest rate policy.

The country needs large amounts of foreign exchange because most industries rely on imports for raw materials and feedstock, they pointed out.

But the central bank seems to be unmoved and determined to go full speed ahead with the de-dollarisation, instructing banks to scrupulously comply with foreign currency-related policies.

Withdrawing investment from non-core sectors 

Vietinbank recently announced plans to sell its stake in the Sài Gòn Commercial Joint Stock Bank (Saigonbank) through an auction.

It will offer 16.875 million shares, equivalent to 5.48 per cent of Saigonbank’s chartered capital.

If the auction is successful it will help the bank pare its ownership of Sài Gòn Bank from the current 10.39 per cent to 4.91 per cent as instructed by the State Bank of Việt Nam through its Circular 36/2014.

The circular stipulates that a bank can own no more than 5 per cent shares in a maximum of two other banks.

Circular 36 regulates prudential ratios for the operations of credit institutions, including foreign, to reduce cross-ownership and manipulation in the banking sector.

The SBV will allow higher than the stipulated 5 per cent ownership in specific cases where it designates banks to either prop up the financial situation or support the restructuring of fragile organisations.

Selling stakes in other banks was also a hot topic at Vietcombank’s annual shareholders meeting in April when many wondered how the bank would achieve it.

Vietcombank leads the banking sector in holding stakes in other lenders, most of which exceed the central bank’s ceiling.

It owns a 7.16 per cent stake in Military Bank, 8.19 per cent in Export and Import Bank, 5.07 per cent in Orient Commercial Bank, 4.3 per cent in Saigonbank and more than 10 per cent in Cement Finance Company.

Vietcombank bosses said the stakes in the three banks would be retained since they were very profitable, though adding this could change depending on their future performance and share prices.

Banks are scrambling to sell shares in other banks because the deadline for it set by the central bank has ended.

The circular took effect on February 1, 2015, and banks were given 15 months to comply with it.

Many banks have yet to do so and petitioned the SBV to extend the deadline, saying it was too tight.

State firms in many other sectors too require to withdraw from non-core sectors, but in the last five years have only achieved 30 per cent of the target.

A finance ministry official said the target for 2016 is nearly VNĐ15.69 trillion (over $697.33 million), but in the first four months only VNĐ659 billion worth of stakes have been divested.

Analysts blame the slow pace on certain reasons, one of which is that the shares of businesses to be sold are not attractive to investors.

Besides, the securities markets have been too volatile for investors’ comfort, they said. — VNS

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