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Investors prefer greenback, gold to dong
When the State Bank of Viet Nam (SBV) decided on February 11 to increase the inter-bank exchange rate between the Vietnamese dong and the US dollar by 9.3 per cent, it hoped to reduce the gap in the US dollar rate between the official and free markets, stabilising the rate of the foreign currency.
But the move has done anything but what the bank hoped for.
The new inter-bank exchange rate has caused an upheaval in the prices of gold and the greenback on the free market instead of controlling them.
What resulted was the gold and US dollar rates both reached record levels with a tael of gold exceeding VND38 million and VND22,380 for the dollar after the decision was issued. Meanwhile, supplies of the foreign currency haven't improved.
Market analysts said that many people who have the greenback and even export enterprises don't want to sell the US dollar at this time since they expect the rate to continue rising.
The demand for US dollar and gold is on the rise, because of the devaluation of dong.
The Joint Stock Commercial Bank for Foreign Trade of Viet Nam (Vietcombank) 's recent decision to increase the US dollar deposit interest rate by 0.5 per cent to 5.5 per cent for 12 month term has also stimulated people to buy the greenback.
This can be seen by looking at greenback deposits in the local banking system that have increased by 4.43 per cent compared to before February, while the dong deposits decreased by 4.12 per cent.
As for gold, Vietnamese have stored away a few more hundred tonnes since the currency rate changed two weeks ago.
Market analysts said keeping US dollar and especially gold were always opted by many Vietnamese people as safe measures for protecting their assets when there were many fluctuations on the financial market together with high inflation.
According to some financial experts, authorised agencies need measures to reduce the trade deficit if they want to control the US dollar price on the free market.
They argued that it is importers' high demand for the foreign currency that has put pressure on greenback supplies as well as the exchange rate.
New credit limit
The new credit limit regulation that took effect on January 1 has raised many discussions among financial experts and bankers.
Under new Credit Organisation Laws, foreign banks or branches of foreign banks in Viet Nam are only allowed to provide total credit for a client not exceeding 15 per cent of the bank's ownership equity in the country.
Under the old regulation, branches of foreign banks were permitted to maintain total credit to a client and related parties based on the ownership equity of overseas-head quarters of the foreign banks.
The charter capital of most branches of foreign banks in Viet Nam averages US$15 million.
To adapt to the new rule, many branches of foreign banks operating in the country in late 2010 increased their ownership equity. They include Huanan whose charter capital was increased from $15 million to $65 million; Chinatrust that raised its charter capital from $15 million to $50 million; and Mizuho Corporate Bank that raised the charter capital of its branches in HCM City and Ha Noi to $133.5 million each.
Dr. Le Xuan Nghia, Vice Chairman of the National Financial Supervision Committee, said the new credit limit regulation was aimed to create more opportunities for domestic banks to compete with foreign banks when the domestic financial market was opened up according to the country's World Trade Organisation Commitments.
With the new credit limit change, according to Thomas Tobin, general director of the HSBC Bank (Viet Nam), foreign banks would need to consider further when deciding whether to participate in the market since the investment capital required now was higher than it was before.
Brett Krause, General Director of Citibank in Viet Nam, said that the credit limit might be necessary for foreign banks that did not have a big capital base in Viet Nam. However, the regulation would likely prevent foreign banks from supporting the country's growth.
The new credit limit regulation would make it difficult for investors to get access to capital sources so they would have to seek other capital sources, which would raise their costs.
Financial experts, however, said that the new credit limit regulation would affect mainly small banks.
Only banks with modest capital sources had to increase their equity but major banks including HSBC, Citibank and ANZ had no need to.
At present, many foreign banks appreciate domestic banks' competitive ability with advantages such as nationwide networks and comprehensive understanding of customers'tastes.
Bank insiders, however, warned that these strengths of local banks may be soon not so advantageous, since foreign banks were actively expanding their operation networks in the country as well as employing more Vietnamese workers at various positions.
Meanwhile, Vietnamese banks, in spite of attracting foreign strategic partners, were still unable to compete with foreign banks in banking technology and global products.
Foreign retailers
Although Viet Nam's retail market has fallen from the number one most attractive retail market in the world in 2008 to the 14th position last year, it has still proved to be attractive to many foreign retailers thanks to its 25 per cent growth rate. However, many of them have changed business strategies with the new focus shifting to the provinces instead of big cities.
In 2010, the Germany-based Metro Cash&Carry (Metro) Viet Nam opened three big distribution centres in the provinces of central Binh Dinh, southern An Giang and Binh Duong. Early this year, the company inaugurated a new centre in southern Ba Ria-Vung Tau Province.
General Director Randy Guttery revealed that his company would continue expanding its distribution networks to other provinces as business at these localities proved to be as good as in big cities like HCM City, Ha Noi, Da Nang, Hai Phong and Can Tho.
French retailer Casino Group has in recent years set up retail centres in provinces including Nam Dinh, Vinh Phuc and Nghe An.
There are many reasons for the foreign retailers' new business strategies: people's incomes in provinces have been improved significantly; and shopping habits of provincial people have also changed; Many provincial people have grown more selective regarding product quality and safety so they are ready for modern shops and trade centres.
The fact that many domestic and foreign producers and enterprises involved in restaurants, hotels and resorts have invested into provinces, has also made these localities more attractive especially to foreign retailers.
On top of this, foreign retailers have admitted that they decided to shift their business from big cities to provinces because it was simply cheaper and less complicated to deal with the provinces.
Overly expensive land sites and complicated procedures have discouraged many retailers from doing business in the big urban areas, while the provincial authorities welcomed them with open arms, provided useful support and the costs for infrastructure were much cheaper.
In the face of foreign enterprises'strong retail network development, many domestic retailers have opted to cooperate with overseas partners with financial potential and retailing experience to improve their competitiveness.
The G7Mart Service and Trading Joint Stock Company typifies the trend. It has recently signed an agreement with Japanese-based retail corporate group AEON's Ministop to develop a chain of convenience shops in Viet Nam.
The two companies will set up a joint venture with initial investment capital of over US$10 million. In the first year of JV operation, they plan to open at least 100 convenience shops.
According to a G7Mart representative, as a result of the cooperation the company would benefit from the transfer of convenience shop operating technology and personnel training from Ministop.
Saigon Co.op, the country's leading retailer, has also decided to cooperate with Singapore's NTUC Fair Price to diversify retailing models in Viet Nam.
Under the agreement, the two sides will build a new chain of supermarkets that would be quite different from the current one with bigger sites.
The Phu Thai Retailer Group has already signed a franchise agreement with Japan's FamilyMart.
Thien Ly
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