Time to adjust Dong/Dollar exchange rate

It’s time to adjust dong/dollar exchange rate

Posted: 04 Jul 2012 05:06 AM PDT

LookAtVietnam – Some bankers have urged the State Bank of Vietnam to
regulate the dong/dollar exchange rate in a flexible way to ensure the
harmonization of different economic goals, instead of trying to stabilize the
exchange rate somehow.

The dong/dollar exchange rate has been fluctuating regularly since early June.
When the dollar price increased slightly in early June, this did not catch the
attention of the public, because the central bank committed at the beginning of
the year that the dong will not devaluate by more than 3 percent by the end of
the year.
Experts also said on local newspapers that they did not think the dollar price
increase would continue in the context of the profuse foreign currency reserves
and kieu hoi (overseas remittance).
However, the dollar price has increased continuously since then. The dollar
price once climbed to 21,000 dong per dollar. Meanwhile, worries have been
raised among businesses that the dollar supply would be short in the time to
come. The dollar demand is believed to increase towards the end of the year,
when businesses need dollars to make payment for imports. Besides, the dong has
become more attractive when the dong interest rates have been lowered by the
State Bank.
Thoi bao Kinh te Vietnam has quoted a senior executive of HSBC as saying that
the exchange rate may not fluctuate too heavily in the third quarter of 2012,
but the dollar would surely be appreciating in the fourth quarter of the year.
Businesses have been told to keep cautious with the stabilization of the
dong/dollar exchange rate for a long time. In general, businesses do not use any
“defensive measures” which help them deal with the exchange rate fluctuations;
especially, they see the dollar price stable for a long time.
The businesses would only hurry to take actions when the dollar prices soar and
influence their business. This would cause uncertainties to the whole market.
Trinh Quang Anh, Director of the Economics Research Center of Maritime Bank said
on Dau tu that it’s now the time to adjust the dong/dollar exchange rate.
Anh said that the State Bank has been succeeding in its effort to stabilize the
exchange rate and the activities of the foreign currency market, improve the
foreign currency reserves and restore people’s confidence on the local currency.
However, this does not mean that the central bank would have to strive to the
same goal for ever.
He went on to say that the central bank should take actions right now in order
to avoid the overly hard pressure on the exchange rate which may occur by the
end of the year, when the dollar demand increases.
A banker who asked to be anonymous, also said it would be better if the central
bank begins devaluating the dong/dollar exchange rate slightly right now. The
exchange rate gradual adjustment would help make businesses get adapted to the
new circumstances and avoid the shocks to be caused in case the exchange rate
increases sharply at the end of the year.
The banker said that when the dong interest rates decrease, the adjustment of
the exchange rate would be necessary to harmonize the demands on the market.
If the central bank still holds out the nominal exchange rate for too long, thus
generating big gaps between the nominal exchange rate and actual exchange rate,
this would prompt people to speculate dollars, which would make the dollar fever
more serious by the end of the year.
Dau tu has quoted Truong Dinh Tuyen, a member of the advisory council for
national monetary policies, as saying that curbing the exchange rate fluctuation
within 3 percent this year proves to be a possible mission. However, the
government should think about whether to try to do that.
“When the dollar demand was low, we once asked to loosen the trading band.
However, the State Bank still tried to make the exchange rate stand still,” he
said.
According to Thoi bao Kinh te Vietnam, Vietcombank and Eximbank quoted the
dollar prices at 20,850-20,910 dong per dollar on July 2.
C. V

Vietnam loans down, money supply up at end-April | Look At Vietnam

Vietnam loans down, money supply up at end-April 

June 22, 2012

Money supply at the end of April rose 3.14 percent from the end of 2011

Vietnam’s outstanding loans at the end of April fell 0.59 percent from the end of 2011 to VND2,617 trillion Vietnamese (US$125.2 billion), the central bank said on Thursday.
The Southeast Asian country’s economy slowed to a 4 percent growth in the first quarter, the lowest in three years. Businesses had high inventory and were reluctant to borrow while lending rates were high, leading to a negative credit growth.
Money supply at the end of April, excluding the value of the debt bought by banks, rose 3.14 percent from the end of 2011 to VND3,036 trillion, State Bank of Vietnam data showed.
Deposits by residents rose 11.78 percent during the period to VND1,449 trillion, while deposits by banks dropped 5.6 percent to VND1,084 trillion, the data showed.
It was the first time Vietnam’s central bank has published the value of outstanding loans, deposits and money supply generated in the banking system.
Bankers say they would rather have negative lending growth than bad debt.
The inventory index, a measure of unsold goods held in warehouses, rose 34.9 percent as of March 1 from the same period last year, government’s statistics showed.
Vietnam’s economic growth is forecast to slow to an annual pace of 4.31 percent in the first half of this year, even though second-quarter growth accelerated to an estimated 4.5 percent.
In late May, the government shifted its priorities to stimulating expansion and Prime Minister Nguyen Tan Dung told banks with surplus funds to boost lending, after the inflation rate fell to below 10 percent for the first time since October 2010.
The State Bank of Vietnam said last year it would publish statistics of the banking system’s operations, in addition to policy news and details of bank mergers and acquisitions, in a move to bring more transparency to the sector.
It also plans to disclose five of the 12 core banking system indicators, in line with the International Monetary Fund’s financial soundness indicators, including capital adequacy ratio, return on assets (ROA), return on equity (ROE), bad debt and breakdowns of bank loans.
On Wednesday the central bank said banks had weaker financial performance last year than the year before and their bad debts recently have been “rising continuously”.
Bad debts in Vietnam hit $5.18 billion, or 4.14 percent of total loans as of April, up from 3.06 percent in 2011, due to economic difficulties faced by businesses, based on a central bank report to the National Assembly reported by state media.

Central bank urged to tread carefully with bad debt bailout | Look At Vietnam

Central bank urged to tread carefully with bad debt bailout 

June 16, 2012

A view of a Maritime Bank branch in Ho Chi Minh City. Economists warn that a central bank plan to buy banks’ non-performing assets could bring back inflation
Economists say the central bank should be cautious with its plan to buy distressed debt from banks to avoid too fast an increase in money supply, which could again spark off high inflation.
The plan to establish a company under the management of the State Bank of Vietnam to trade bad debt worth some VND100 trillion (US$4.8 billion) was mooted after loans contracted in the first five months.
Though no further details have been announced, Le Xuan Nghia, former vice chairman of the National Financial Supervisory Council, said the news of the debt relief plan has cheered up the market.
The increasing bad debts have made banks hesitant to lend, stymieing credit expansion, and they would boost lending once the bad debt problem is resolved, he said.
Truong Van Phuoc, general director of Eximbank, said a system to trade distressed debts would enable banks to begin lending again.
“It will allow banks to offer new loans and lower interest rates,” he said.
The bad debt ratio of Vietnamese commercial banks rose to 3.6 percent from 3.2 percent at the beginning of year, State Bank Governor Nguyen Van Binh said on April 12. According to data compiled by Reuters, the ratio was 2.16 in 2010 and 2.03 percent in 2009.

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Fitch Ratings said in a March report that the actual bad debt figure could be higher, warning that asset quality is likely to deteriorate further. “Non-performing loans are significantly understated under the country’s accounting standards and could be three or four times higher,” the agency said.
Dau Tu, a newspaper published by the Ministry of Planning and Investment, Monday cited an annual report from the Vietnam Center for Economic and Policy Research as saying Vietnam’s bad debt ratio actually ranges between 8.25 percent and 14 percent of total loans, or between VND83.1 trillion and VND141.1 trillion. Most of the non-performing loans are related to real estate and stock markets.
Economist Nguyen Dinh Cung, who headed the research team that drew up the report, said banks may have engaged in risky lending, offering loans to weak firms at very high rates that they could not bear.
Whose responsibility?
Le Dat Chi of the Ho Chi Minh City Economics University said the central bank should go slow with the plan.
The money supply will increase when the central bank buys bad debt, possibly compromising the task of controlling inflation, he said.
Besides, even if banks get rid of their bad debts, there is no guarantee they would increase lending as expected by the central bank, he pointed out.
Bankers are of course excited with the plan since they took unnecessary risks earlier and are still being rescued by the government, he added.
Economist Dinh The Hien said the central bank needs to explain what it would do with the distressed loans it buys.
It is also imperative to find out the causes of bad debts, and banks with poor lending practices have to take full responsibility for their bad debts, he added.
Vu Viet Ngoan, chairman of the National Financial Supervisory Council, was quoted by Dau Tu as saying there should not be high expectations for the new plan to set up a company to buy bad debt.
“The establishment of the company may help expand loans and reduce bad debt. However, this would be just one measure, and it would not be able to get rid of all the bad debts in the banking system.”
He said other countries may be able to buy distressed debts in just a few months. But Vietnam, due to its limited resources, would have to deal with the situation in a different way, he added without elaborating.
He estimated that loans contracted 0.76 percent in the first five months, saying “it is a certainty that the credit growth target of 15-17 percent for this year will not be achieved.”
While indicators six months ago suggested “a major issue” in Vietnamese banking sector, “now it looks like somehow they’ve managed that immediate risk,” World Bank Vietnam Country Director Victoria Kwakwa told Bloomberg in an interview at a conference in the central town of Dong Ha.
“I don’t think the risks are as elevated as they were before,” Kwakwa said. Sector is still vulnerable, she said, citing “several” weak banks and high levels of non-performing loans.

By Thanh Xuan – Mai Phuong, Thanh Nien News (The story can be found in the June 8th issue of our print edition, Vietweek) 

Vietnam to let banks set rates on consumer loans

HANOI, Jan 24 (Reuters) - Vietnam will allow banks to establish interest rates on consumer loans on a negotiable basis from next month, the central bank said.
The new rule, effective from Feb. 1, will allow banks to set interest rates on consumer loans outside the ceiling rate, which is equivalent to 150 percent of the base rate regulated by the central bank, bankers said.
"Banks are allowed to apply negotiable interest rates for consumer loans and credit card loans according to the central bank's lending regulation, the supply and demand of funds and borrowers' creditworthiness," the central bank said in a statement seen on Saturday.
On Friday, the central bank said it would also cut the benchmark base rate to 7 percent from Feb. 1, effectively lowering the ceiling rates to 10.5 percent, from 12.75 percent now as it moved to boost corporate borrowing to stave off an economic slowdown. (Reporting by Nguyen Nhat Lam

Vietnam may cut base rate in August -media | Reuters

Vietnam's central bank could cut its base rate, used by banks to set deposit and lending rates, from August, when inflation is expected to be under control, a state-run newspaper reported on Wednesday.

"The state will manage interest rates on a stable trend; at least in July (it) will not adjust the base rate but it could adjust the rate down in August," Ho Huu Hanh, director of the State Bank of Vietnam's (SBV) Ho Chi Minh City branch, was quoted as saying by the Liberation Saigon daily.

The rate cut could come "because inflation is forecast to be contained", Hanh was quoted by the newspaper as telling Vietnamese reporters at a briefing on Tuesday.

Foreign media were not invited to the briefing.

The State Bank of Vietnam raised its base rate to 14 percent in June from 12 percent, its third rate hike this year, as it sought to contain inflation, which hit 26.8 percent in June.

The consumer price index (CPI) rose 2.14 percent in June from May, smaller than the 3.9 percent increase in May from April, the government said.

Matt Hildebrandt, economic and credit researcher at JP Morgan Chase & Co in Singapore, said monthly changes in the CPI in July and August would need to be a lot lower than that 2.14 percent in June for him "to feel very confident in lowering rates".

"August might be a little too soon and we would feel more comfortable if they did it later in the year," Hildebrandt said. Continued...