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Local financial sector faces challenging year
The financial sector has anxiously started a new year as the macroeconomic situation is forecast not to improve over the next six months.
In a recent conference between finance companies and the National Assembly’s Economy Committee, some experts even forecast that the 2009 GDP growth would be only 3 percent, exports drop sharply and the value of the Vietnamese dong decrease by more than 5-10 percent.
Interest rates would continue to fall in a Government’s effort to push the economy forward while the banking system would face serious risks, they added.
Despite the dong’s loss of value, the country’s balance of payments was believed to remain stable because demands for imports would decrease.
Some optimistic stock and fund management experts have predicted that the local stock market would increase by 15-20 percent in 2009, but others worried that except for the fall in the interest rate, there would be factors which would support the stock market’s growth this year.
The value of last year’s stock transactions was 700-800 billion VND (45-50 million USD) each day. This year, however, the figure has dropped to under 300 billion VND (18.5 million USD).
Foreign stock investors have mostly sold their shares and the Government’s 1 billion VND stimulus package has not had any effect on the market yet.
Listed companies’ 2008 financial reports have showed good results, but according to experts, companies will face serious difficulties starting in the first quarter of this year. It is expected that finance and real estate firms will be especially hard hit.
Starting in the second half of last year there was increasing worry about bad debts, but many big banks still announced positive year-end business results, showing higher profits than in 2007.
However, only a tiny portion of their profits came from credit activities. The rest came from gold and Government bonds.
As the financial crisis in the US took hold, foreign investors began to rapidly sell the bonds to local banks, which received a 30 percent profit. However, there are no opportunities for the banks to repeat the same investment in 2009.
Meanwhile, a tight credit market means less money entering into circulation, weighing heavily on the economy.
Big investment funds such as VinaCapital and Dragon Capital are trying to mobilise more foreign capital for the Vietnamese market.
However, the work might be difficult. Last year, investment funds in Vietnam lost over 50 percent of their value, according to a report from the London-based LCF Rothschild Emerging Market Funds Research. This result was unexpected because in 2007, the funds had increased by a quarter and doubled from the year before.
The main reason for the reduction in foreign capital is the world financial crisis. Investors are expected to pour their money into familiar markets where they can purchase distressed assets.
This year, the Government will face great challenges in managing the nation’s economic difficulties. Many dilemmas exist – the Government has provided money to stimulate the economy but this would cause inflation. Additionally, to mobilise money for investment, more Government bonds will be issued. The issuance would increase, rather than reduce, interest rates.
Complicated economic occurrences in 2009 will require the Government to have a cautious and flexible response
vna
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