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Banks lending money hand-over-fist
May was a memorable month for the banking sector. It saw outstanding loans surge 4.2 per cent month-on-month and by almost 15 per cent from the end of 2008. Deposits in the dong and foreign currencies rose by 3.87 per cent and 13.64 per cent.
However, credit growth has remained high not just in May but all through this year.
Asia Commercial Joint Stock Bank says by the end of May, it had outstanding loans of VND50 trillion (US$2.8 billion), nearly 50 per cent up from January. Short-term loans availed at subsidised interest rates increased at the sharpest rate.
The corresponding figure for Dong A Commercial Joint Stock Bank was nearly VND27 trillion, up 23.2 per cent over the same period last year.
Tran Xuan Huy, general director of the Sai Gon Thuong Tin Commercial Joint Stock Bank, or Sacombank, says though his bank has set a year-end credit target of VND50 trillion, the figure has already topped VND44.8 trillion.
At the Export and Import Commercial Joint Stock Bank (Eximbank), the figure is up 40 per cent from January.
The central bank has targeted 21-22 per cent credit growth for the banking sector this year, the same as 2008, before revising it to 25 per cent.
But if credit continues to expand as rapidly as in May, the year-end figure is likely to be around 36 per cent, something the State Bank of Viet Nam (SBV) clearly does not want.
This means monthly credit growth during the rest of the year cannot exceed 1 per cent, an uphill task for the banks. In four months since the first stimulus package was launched by the Government in January, they disbursed subsidised loans of over VND331.9 trillion.
The interest-subsidy scheme could see as much as VND600 trillion lent this year, or almost double the amount lent thus far.
Analysts fear this rapid credit expansion would trigger a deposit-interest-rate war and a surge in non-performing loans in future. Many banks have, in fact, already joined the race to increase deposit interest rates to raise funds for lending.
In just the last 10 days, the rates rose by 0.3 to 0.5 per cent. Last week the Nam Viet Commercial Joint Stock Bank hiked its rate for 36-month deposits to 10 per cent, close to the highest lending rate of 10.5 per cent.
Out-of-touch exporters
Difficulties in selling abroad due to the global economic turmoil have forced many Vietnamese firms to return to the domestic market which they have virtually ignored for the last several years. But they are finding it unexpectedly hard to sell their stuff at home.
Possibly, their biggest obstacles are low-cost imports, smuggled goods and knockoffs.
Many of them have been slashing prices but are still unable to compete with the cheap imports that are flooding HCM City.
The most affected are plastics, garment and textile, and footwear companies.
Vo Duc Bay, deputy director of the Cho Lon Plastic Company, says his company has cut prices by 15 to 20 per cent but sales remain very sluggish.
A HCM City-based footwear firm admits that local producers have no way of competing with off-quota Chinese products. A pair of Chinese sandals costs VND15,000 at most and a pair of shoes, VND50,000 to VND70,000.
The Viet Nam Steel Association also says steelmakers are suffering after China decided to scrap export tax on steel which used to be 5 per cent earlier. A tonne of Chinese steel products costs VND700,000 to VND1 million lower than similar Vietnamese products.
Apparel exporters claim that smuggled goods and brand-name knockoffs have taken over the garments market, and their efforts to penetrate it have only achieved modest results.
Economists also blame the lack of efficient distribution systems for this situation.
Since they have not had a presence in the domestic market for long, Vietnamese exporters do not have their own distribution networks. Many have no long-term plans to remain at home either, merely thinking of the domestic market as an expedient until export markets recover.
The economists say, however, if these enterprises attach as much importance to the domestic market as their export markets and adopt proper penetration strategies, they would be successful because of their many advantages – like a good understanding of Vietnamese consumers and their tastes and familiarity with local conditions.
But the Government needs to support them by cracking down on smuggling and fakes, they say.
Dollar explosion
The forex market experienced severe pressure in the first week of June as many foreign companies demanded dollars not only for import payments but also repatriating profits.
Some of them wanted up to $50 million.
But supply has remained rather limited and the central bank is not obliged to assist them.
At the same time, imports of consumer goods have risen sharply, increasing demand for the greenback.
The Ministry of Planning and Investment admitted at a recent meeting that the forex situation would remain volatile until the end of this year since dollar inflows from foreign investment and remittances would decrease due to the global crisis.
VNS
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