Credit growth tells only part of the story
|ANZ's Asia Pacific CEO Gilles Plante
(VNS) The Vietnamese financial market is still in its infancy. There are many challenges within the market and new regulations to enhance the operation of banks involving foreign factors await approval. Viet Nam News asked ANZ's Asia Pacific CEO Gilles Plante and Viet Nam CEO Tareq Muhmood to share their views.
Credit growth was negative in the first two months of this year and businesses were not willing to borrow despite the attractive interest rates offered by banks. Meanwhile, Government bonds were successful in finding buyers. Are there any other markets like Viet Nam?
Muhmood: Viet Nam's credit growth tells only one part of the story. In reality, there are two main trends going on. You have one part of the economy reducing borrowing or cutting down business size, so the need for credit is less. And you have another part of the economy that is quite exciting, growing at a good rate, such as the export and agriculture sectors. Their demand for credit is quite significant.
You are right that credit growth based on the whole country's situation is flat or very low. But this does not reflect the whole story. I think what's positive is that although not much credit growth is happening, generally there is better quality, sustainable growth, not speculation. So I don't think at this point the situation is completely negative.
Plante: What is happening in Viet Nam is not unusual for an emerging market. What we see today in Viet Nam is that some parts of the market have credit constraints. This is also not unusual because the capital market is still developing. Capital market development is essential for countries like Viet Nam. The country can see the transfer of investor money between the corporate sector and government sector.
Do you think when banks use excess liquidity to buy Government bonds, it will distort the allocation of funds?
Plante: Managing liquidity is obviously a key task for any large corporation or financial institution. Deploying liquidity in instruments like Government bonds is a natural way of managing cash. We recommend customers manage their cash tightly, affording the cash cycle through working capital and short-term facilities, while on the other side of the balance sheet making sure available cash is put to proper use, respecting capital and liquidity.
Investable securities which are allowed in the country do not create distortion if, from a treasury risk management point of view, there are adequate tools and advice from reputable bankers.
Is the interest of foreign investors in corporate bonds affected by the country's credit rating?
Muhmood: I agree that the market has been very quiet. We expect in a few years we will see more activity in the area. We've talked to a lot of investors both locally-based and overseas, insurance companies and fund managers, and we've started to see more interest in Viet Nam as a destination for investment into the bond market. I expect that in the next couple of years this will become a very important sector that supports the funding of local companies.
A new draft circular from the central bank states that to become strategic partners of Vietnamese financial institutions with a 20 per cent stake, foreign investors must have US$20 billion in total assets. Given the current downturn in banking operations, do you think they will be willing to do this?
Muhmood: The sector has quite a few developed players. Some banks had challenges and had to focus on cleaning up balance sheets, while some banks expanded quite well.
I think the logic behind the State Bank's circular (whereby foreign banks have to be a certain size overseas before they can invest in Viet Nam) is consistent with many other regulators around the world, who just want to make sure that any investors in Viet Nam are strong enough to make a difference when they partner with a bank in Viet Nam.
Plante: We know that for the country to prosper, it needs a strong financial system. Inevitably, you need very strong banks. In the context of Viet Nam - but also in other countries - we welcome any measures taken, such as bank consolidation, mergers and increasing capital at an adequate ratio. A strong financial system is essential for every developing country. We've been watching the reforms for 12-18 months. Any support is absolutely essential for the country.
You ended your strategic alliance with Sacombank last year. Do you have any plans to partner with other Vietnamese banks?
Plante: We've had a successful partnership with Sacombank over the years. We left to grow our organic business. We believe the opportunities in the customer sector we're focusing on, which includes large corporations and affluent individuals, are tremendous. — VNS