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Interest rates, gold, dollar fluctuate in week
Following the State Bank of Viet Nam's decision to increase the basic interest rate by 1 per cent per annum on November 11 – a necessary step at this point in time to help control inflation and stabilise the foreign exchange quote – commercial banks started paying depositors a higher rate of 12 per cent from the previous 11 per cent.
TienPhong Bank offers the new rate while continuing with its gift programme. Others like SeABank offer additional cash to customers and WesternBank gives gifts worth 0.7 to 3 per cent apart from the official 12 per cent annual interest rate, depending on the amount and term.
The VPBanks's promotion totals up to VND11 billion (US$550,000) with a Mercedes sedan as the top prize. However, last Thursday, several banks heated up the interest-rate activity by one way or another, pushing it to more than 13 per cent.
The banks expect to improve their capital sources, which will certainly be affected by tightened regulations on the mobilisation of gold and the US dollar. On October 29, the State Bank of Viet Nam (SBV) issued Circular 22 that banned banks from selling gold deposited by customers and using the funds for loans or for converting into foreign currencies.
Last week, the Viet Nam Association of Financial Investors (VAFI) asked the Prime Minister to approve a 1 per cent interest rate increase on individuals' deposits in US dollar from the current annual rate of 4-5 per cent.
Last Tuesday morning saw a gold price hike to a new record of up to VND38.8 million per tael and a US dollar price of VND21,500. Prices for both cooled down after the State Bank governor allowed gold imports the same day. The State Bank's announcement on dollar sales to commercial banks also helped.
However, their prices remained high, more than VND36 million for a tael of gold and around VND21,000 for a dollar in the black market. At those rates, a tael in Viet Nam was about $12 more expensive than the world market, remaining attractive to illegal importers of the precious metal.
Thus, the situation pushed up the foreign currency price on the black market. These developments somehow steered people to turn to gold and dollars rather than put their money in savings accounts in Vietnamese dong to preserve the money value.
The National Financial Supervisory Commission estimated that around 1,000 tonnes of gold, equal to around $40 billion, are idly held by Vietnamese people, an amount larger than the combination of the country's reserve and foreign currency in deposits at banks.
Meanwhile, higher deposit rates would result in higher lending rates, which may scare away some corporate customers as they will have to carefully consider loans against possible profit.
Oriental Commercial Bank General Director Trinh Thanh Tuan said his bank might not fulfill its target of 40 per cent credit growth this year. To date, it has completed around 25 per cent.
The central bank had a quick response to the continued increasing interest rate, announcing last Thursday afternoon its plan to intervene in the monetary market by pouring more cash on the open market. The bank also blamed psychological factors as a reason for the hike.
Too many FIEs suffer
Recent statistics by the HCM City Taxation Department showed that over 1,100 foreign direct investment enterprises out of 2,190 operating in the city declared losses last year, up from 965 in 2008 and 591 in 2007. Many of the enterprises announced losses of six to 10 consecutive years.
However, tax authorities doubted these figures and said that nearly VND6 trillion (US$300 million) in losses had been transferred overseas to become profits of their parent companies. They were then able to evade paying tax.
Despite the loss declarations, many companies have been growing in terms of turnover, network and market share.
Nguyen Trong Hanh, deputy head of the department, told Tuoi Tre newspaper that one common way of evading tax was to increase material prices between individual companies that are members of the same group. One company will sell a product at a high price to the other member, and the profit will be transferred overseas to its parent company.
Another way of evading tax involves a parent company supplying goods to its affiliate in Viet Nam. The affiliate then says publicly that it will pay on an instalment plan. This payment mode results in an interest rate paid to the parent company.
Apart from supplying goods, the parent company can also sell equipment to its affiliate at unreasonably high prices, which results in a loss.
Foreign-invested enterprises can also sell their products to their parent firms at the production cost. They justify these sales by saying they are in dire need of cash.
The parent company can also add costs to their goods which are transferred to an affiliate in Viet Nam. One company even added to its operation costs the expense of installing its parent group's flag on Mars.
Their behaviour has caused harm to the State budget, contributing to the trade deficit and creating an unfair competitive environment for businesses that pay taxes as required by law.
In addition, because of losses declared over the years, some joint-venture companies will increase their capital and, thus, their stake in the joint venture. The local partner of the company usually cannot afford to contribute capital, so the foreign partner may eventually take over the entire company.
According to Hanh, the State needs to issue official documents regulating specific responsibilities of relevant organisations such as taxation, customs, investment management, police and banks so that they will be able to co-operate in fighting tax evasion. The legal framework will also need to be improved to resolve the problem.
Price rises
The Ministry of Finance will send its teams until the year-end to localities to inspect stabilised prices in an effort to control price increases.
Last Wednesday, the ministry required departments of finance in cities and provinces to co-ordinate with related organisations to check on price regulations including price registration and quotations for key items of pharmaceuticals, dairy products, steel and building materials, cooking gas and fertiliser, among others.
Any violations will be seriously handled. Local task forces will be authorised with handling the mission.
Finance and industry and trade departments are required to join hands to balance the supply and demand of goods, especially of food and foodstuff which make up around 40 per cent of a basket of items used to calculate the consumer price index.
Plans should be drawn up to ensure price stability towards the Lunar New Year season that will begin in February, as this is a prime time for price hikes.
Vice Chairwoman of the HCM City People's Committee Nguyen Thi Hong told companies that had obtained loans at a preferential interest rate under the city's price-stabilisation programme that they could not increase prices before the end of March.
They were asked to work out plans to ensure sufficient supply to meet increased demand for the New Year season as well as to open more retail outlets to better serve low-income earners.
Thuy Anh
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