Local banks recovering from a long slump

June 26, 2017 - 10:04

Since the beginning of this year the shares of many banks have appreciated significantly, with the increases ranging from 8 per cent to even 80 per cent.

Customers transaction at a branch of VietinBank. — Photo vov.vn

Since the beginning of this year the shares of many banks have appreciated significantly, with the increases ranging from 8 per cent to even 80 per cent.

Military Commercial Joint Stock Bank (MBB) has gained 18 per cent and the Bank for Investment and Development of Việt Nam (BIDV), 15 per cent. NVB is up 80 per cent though its liquidity is very low.

CTG, EIB, and ACB are up 11.4 per cent, 10 per cent, and 9.2 per cent.

Bank share prices saw sharper increases in the over-the-counter market, with VPBank going up 2.3 times to VNĐ40,000.

After a lull of several years, bank shares have started looking up again, attracting new funds into the market.  

Analysts are divided on the cause of the phenomenon.

The HCM City Securities Company attributes it to an expectation among investors that banks’ bad debt problem would be resolved with the coming into existence of the debt market soon.

In July 2015 the State Bank of Việt Nam issued Circular No.09/2015/TT-NHNN on debt trading by credit institutions and foreign banks.

It does not cover debt buying and selling by the Vietnam Asset Management Company or debts arising from loan contracts among credit institutions and foreign banks.

The circular is said to stipulate important legal conditions for establishing a debt trading market.

When a debt market is established, bad debts, which are now the biggest burden on many banks, would be settled more easily.

Another reason is that at the ongoing National Assembly session the Government has tabled for approval a resolution on bad debt settlement.

If it is approved, the Government will instruct relevant ministries and agencies to streamline legal regulations on restructuring ailing credit institutions so that settlement of bad debts is more effective.

Besides, many banks plan to increase their chartered capital by selling strategic stakes to foreign investors, and rumours have been doing the rounds that the Government will increase the foreign ownership limit in banks as early as this year to hasten the overhaul of the banking system and attract overseas investments.

All this has been music to the ears of investors, who they have enthusiastically bought bank shares, sending their prices rising.

Other analysts attributed the appreciation in the share prices to the positive effect of the strong credit growth, which is expected to improve banks’ bottom lines.

According to the National Financial Supervisory Committee, the banking sector’s credit rose by 6.8 per cent as of the end of May, a record number for the last eight years.

Nguyễn Trí Hiếu, a senior economist, said monetary policies would play a key role in growing the economy this year.

So it would be necessary to increase the credit growth target from the current 16 per cent to 18-20 per cent, he said.

For banks, 80 per cent of revenues come from credit activities, and only the 20 per cent from fee-based activities. 

SBV urged to rethink zero interest on dollars

On June 15 the US Federal Reserve raised the key interest rate on the dollar by a quarter percentage point, its third hike in six months, lifting the benchmark lending rate to a range of 1-1.25 per cent.

The Fed foresees one additional hike this year, unchanged from its previous forecast. But it has given no hint of when that might occur.

These together with other international events including Britain’s EU exit and the US’s new policies have created volatility in the international financial market.

But in Việt Nam, the VNĐ-USD exchange rate saw little change thanks to the State Bank of Việt Nam’s flexibility in interest rate regulation and monetary policies including cutting the interest rate on dollar deposits to zero.

The SBV’s efforts to keep the currency steady have paid off.

For instance, on June 15 when the US raised its interbank rate, the Vietnamese currency barely noticed it, with the interbank rate going down a mere VNĐ8 from the previous day to VNĐ22,695 to the dollar.

Banks quoted the dollar at VNĐ22,725, VNĐ10 up from the previous day, before bringing it down to VNĐ22,690-22,695.

On the informal market, the dollar was sold at VNĐ22,700.

Thanks to this stability on the foreign exchange market, the central bank bought a large volume of foreign currencies to increase the country’s foreign exchange reserves to a record level. 

But experts still do not feel secure.

The National Financial Supervisory Committee forecast the US rate hike, but said small rate increases each time would not bring significant pressure on exchange rates.

But it warned that the exchange rates would be under pressure from the high trade deficit in the remaining months of 2017, and the US’s plan to continue raising the dollar rates several times in the coming years.

According to some bankers, the trade deficit this year is predicted to be 3.5 per cent of exports, or US$7 billion, which would put pressure on exchange rate at certain times.

They also fear that unforeseen movements by the Chinese yuan and Japanese yen, two very strong currencies, could affect the đồng.

In fact, the dollar has shown some signs of appreciating against the đồng, with the State Bank of Việt Nam raising the buying price of the dollar by VNĐ50 to VNĐ22,725 on June 20.

Banks followed suit, increasing the buying and selling prices of the greenback by VNĐ50 and 70.

Earlier analysts had said it is time for the central bank to rethink its zero interest rate policy since it does not help mobilise foreign exchange to serve the economy.

This is because the zero policy is “bleeding” foreign exchange and hitting inward remittances.

Meanwhile, the US has consistently been hiking its rates, widening the gap between the two countries’ interest rates.

Overseas Vietnamese are now happy to keep their dollars at home to enjoy the higher interest rates instead of remitting them to Việt Nam, resulting in a strong drop in remittances in recent times.

Data from the SBV’s HCM City branch showed that overseas remittances declined by US$500 million in 2016, and they are expected to drop further this year.

In the event, analysts have called on the central bank to rethink dollar interest rates because the difference in the rates between foreign currencies and the đồng and the difference between the interest rates in Việt Nam and foreign countries are important factors in attracting foreign currencies.

Some want the central bank to hike the interest rate on the greenback to 0.25- 0.5 per cent.

Ministry mulls auto industry protection

The Ministry of Industry and Trade is crafting a new strategy to protect the auto industry with tax policies at its centre, Sài Gòn Times Weekly reported.

In a draft, the ministry suggests three solutions to rev up the local auto industry, which has remained sluggish despite a slew of tax incentives.

The first is to make sure there is a large enough domestic market so that policies can be framed to encourage consumers to choose locally-made vehicles.

Then, technical barriers will be put up and controls tightened to check imports and fight fraud so to create favourable conditions for the growth of the auto industry.

The second solution is to have policies supportive of local automakers, especially those with popular products, so that they can compete with imported vehicles when import tariffs are slashed to zero next year.

The third solution focuses on changing special consumption tax on autos. This tax will be cut to zero for autos with high local content, with income tax also being revised downward for large auto projects.

If the auto protection strategy is approved, it is expected to give a strong boost to local auto assemblers and encourage them to increase local content, which currently ranges between 7 per cent and 10 per cent.

The ministry also suggests hiking the taxes on pick-ups to the same levels as sedans. — VNS