Local banks recovering from a long slump

Military Commercial Joint Stock Bank (MBB) has gained 18 percent and the Bank for Investment and Development of Vietnam (BIDV), 15 percent. NVB is up 80 percent though its liquidity is very low. CTG, EIB, and ACB are up 11.4 percent, 10 percent, and 9.2 percent.

Bank share prices saw sharper increases in the over-the-counter market, with VPBank going up 2.3 times to 40,000 VND. After a lull of several years, bank shares have started looking up again, attracting new funds into the market.

Analysts are pided 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 Vietnam 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 percent as of the end of May, a record number for the last eight years.

Nguyen Tri Hieu, 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 percent to 18-20 percent, he said.

For banks, 80 percent of revenues come from credit activities, and only the 20 percent 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 percent.

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 Vietnam, the VND-USD exchange rate saw little change thanks to the State Bank of Vietnam’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 8 VND from the previous day to 22,695 VND to the dollar.

Banks quoted the dollar at 22,725 VND, 10 VND up from the previous day, before bringing it down to 22,690-22,695 VND. On the informal market, the dollar was sold at 22,700 VND.

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 percent of exports, or 7 billion USD, 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 VND.

In fact, the dollar has shown some signs of appreciating against the VND, with the State Bank of Vietnam raising the buying price of the dollar by 50 VND to 22,725 VND on June 20.

Banks followed suit, increasing the buying and selling prices of the greenback by 50 and 70 VND.

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 Vietnam, resulting in a strong drop in remittances in recent times.

Data from the SBV’s HCM City branch showed that overseas remittances declined by 500 million USD 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 VND and the difference between the interest rates in Vietnam 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 percent.