On 18 November 2010, the Ministry of Finance issued Circular No. 186/2010/TT-BTC (“Circular 186”) re: providing guidance for profit remittance by foreign individuals and organizations who earn profits from direct investments in Vietnam under the investment laws and regulations. Circular 186 will come into effect on 2 January 2011 and replace Circular 124/2004/TT-BTC dated 23 December 2004 of the Ministry of Finance re: profit repatriation by foreign individuals and organizations who earn profits from direct investments under the law on investment in Vietnam (“Circular 124”).
Please find our key notes on the new circular as follows:
‐ Either Circular 124 or Circular 186 governs profit remittance activities in relation to direct investment under the Law on Investment (not indirect investment activities such as securities over stock exchanges);
‐ Circular 186 provides that all profit that lawfully allocated to or received by the foreign investors from all direct investment activities in Vietnam under the law on investment may be repatriated. However, it is not clear in Circular 186 whether income from capital transfer or tax refund may be remitted (as permitted under Circular 124).
‐ Under Circular 124, subject to certain conditions and requirements, the foreign investors may repatriate lawful profit on an annual basis, quarterly or semi-annual or upon liquidation of its investment projects in Vietnam. However, Circular 186 expressly only allows making repatriation on an annual basis or upon liquidation of the investment projects in Vietnam. Pursuant to Circular 186, the profit must be determined in accordance with the audited financial reports and corporate income tax finalisation reports which already submitted by the foreign invested enterprises to the competent tax authorities. In addition, Circular 186 requires the foreign investors and the relevant foreign invested enterprises must fulfill their financial obligations respectively to the State in relation to the relevant profit before the profit could be remitted;
‐ Circular 186 provides that profit remittance by the foreign investors is restricted if the relevant foreign invested enterprises still suffer any accumulated loss. This requirement was previously provided for in various tax rulings and imposed by many local tax offices. With the issuance of Circular 186 this requirement becomes officially.
‐ Circular 186 requires the foreign investors (directly or authorizing the relevant foreign invested enterprises) submit a pro-forma notice re: profit remittance to the competent tax authority at least 7 business days prior to the proposed date of remittance. Based on the pro-forma form of notice attached to Circular 186, it is noted that such notice does not need to be certified or confirmed by any tax or state authorities (as required in Circular 124). TranTM
CURRENCY - Vietnam dong in ‘extreme trouble,’ Morgan Stanley says
Vietnam’s dong is in “extreme trouble” and is at risk of depreciation, Morgan Stanley said, two days after the International Monetary Fund warned the nation’s reserves were at a “low” level.
A deteriorating balance of payments, a weak economy and trade deficit are “exerting significant downward force” on the dong, Stewart Newnham, Asian currency strategist at Morgan Stanley, told a conference in Ho Chi Minh City.
The dong has slid 17 percent since Newnham said in May 2008 the nation was headed for a “currency crisis” similar to that of Thailand’s baht in 1997. Vietnam’s foreign reserves at the end of September covered 1.8 months of imports, the IMF said on Tuesday, without specifying a level.
The nation’s foreign-exchange market has shown “positive” changes in December after “tense signs” in the previous month, the central bank said in a statement on its website today.
The dong, which has dropped 5.2 percent this year, traded little changed at 19,498 per dollar today, according to data compiled by Bloomberg. A depreciation to 23,000 dong per dollar in 2011 was “extremely plausible”, Newnham said.
“Since 2008 the dong has been caught in that danger zone where the economy is growing below par and still running a trade deficit,” Newnham said.
Trade Deficit
The State Bank of Vietnam weakened the dong’s reference rate by 2 percent to 18,932 per dollar on Aug. 18, the third devaluation since November last year. That move came amid concern an increase in imports would raise the risk that the Southeast Asian nation will fall short of capital needed to fund its trade deficit.
The shortfall widened 16 percent to $1.25 billion in November from a revised $1.08 billion in October, according to preliminary figures released on Nov. 25 by the General Statistics Office. The gap was $10.66 billion in the 11 months through November.
“If the financial flows can’t pay off the import bill, who is left to pay off the shortfall?” Newnham said. “The answer is, the central bank.”BLOOMBERG
OFFICIAL DEVELOPMENT AID - ODA commitments for 2011 reach $7.9b
Ending the Vietnam Consultative Group (CG) Meeting on late Dec 8, donors announced the total official development assistance (ODA) commitments worth of $7.9 billion for Vietnam, slightly down compared with last year’s figure of $8 billion, according to Vo Hong Phuc, Minister of Planning and Investment.
Of which, bilateral aids from 24 donors reach $3.28 billion and aids from five institutional donors hit nearly $4.6 billion,
The ODA is mainly for infrastructure, public transport and climate changes.
Amongst bilateral donors, Japan took the lead with committed ODA of $1.76 billion and then Korea, France, and Germany with $412 million, $221 million and $199 million respectively.
Four donors have not announced ODA commitments at this meeting yet.
As for institutional donors, World Bank (WB) pledged to provide ODA capital of over $2.6 billion for Vietnam while the aid from Asian Development Bank (ADB) was $1.5 billion.
At the Vietnam CG Meeting late last year, the total ODA commitments for Vietnam reached over $8 billion, marking the highest figure so far.
In 2005, total ODA commitments for Vietnam were only $3.7 billion.
With the fact that Vietnam has become a average income country, so loan terms will also become less favourable with shorter terms and higher interest rates. For this reason, ODA this year will be spent on prioritised investment projects for economic development and those that have ability of return on capital, Phuc said.
Phuc added, although this year ODA is lower than last year’s figure, the commitment of $7.9 billion is an impressive figure. At CG meeting in last December, with the total ODA of $8 billion, but nearly $1 billion was supports from donors for Vietnam to overcome the economic and financial crisis.
Last year, WB was Vietnam’s biggest institutional donor with $2.5 billion while Japan is Vietnam’s biggest bilateral donor with $1.64 billion. This year, Japan continues to maintain this position.
With this ODA commitment of $7.9 billion, the total ODA capital for Vietnam so far has reached $64 billion.
Ending the session, minister Phuc gave thanks to donors and said that the mid-term CG meeting this year will be held in the southern province of Ben Tre.vietbiz
FINANCING - Government bond mobilisation is low
The volume of capital disbursement of government bonds in 2010 is very positive, according to Ministry of Finance.
To early December 2010, the State Treasury has disbursed 83.2 percent of the 40.01 trillion dong in the assigned plan for projects on transport and irrigation. Although the disbursement of government bond fund for projects in education area is lower, it has still reached 78.7 percent of the total 6.18 trillion dong.
Therefore, within November, transport, irrigation, health and education sectors additionally received 2.058 trillion dong. Of that, transport and irrigation sectors were disbursed with additional 1.584,5 trillion dong, reaching the total of over 33.275 trillion dong disbursement.
While the disbursement of government bond fund is very positive, the mobilisation is very difficult. According to statistics of Ministry of Finance, in the first 11 months of 2010, the total capital mobilised by the budget (including capital mobilised for government bonds) only reached 69.3 percent of the yearly plan.
The shortage of capital, according to Trinh Thi Nga, member of the National Assembly Economic Committee, has caused many transport and irrigation works, which have been completed and put into use, to lack of capital for timely maintenance.
Even the work listed in the portfolio of the government bond fund is also facing difficulties to achieve progress, due to the lack of capital. According to reports, the transport sector is expected to complete only 127 out of 269 works; agriculture and rural development sector is also expected to complete just 31 out of 96 works. The programmes to solidify schools and classrooms, and programme to build houses for teachers are expected to complete just 54.6 percent and 64.4 percent, respectively.
The difficulties in raising capital from government bonds have caused many important projects, which have been approved for many years, to be unable to arrange capital, such as Highway 20 project, Highway 27 project, and Dong Nai 3 Hydropower Dam project, etc. Even for the projects of Cao Lanh Bridge over Tien river and Vam Cong Bridge over Hau river, despite the master plans have been approved by the prime minister (these two bridges are put in priority for investment in 2007-2010 period), to date, the construction of the two bridges having strategic positions in the socioeconomic development in Mekong Delta area has to wait until 2012 to be implemented. Similarly, the Dau Giay – Da Lat Highway project has not bên able to arrange financial sources.
According to minister of Finance Vu Van Ninh, the demand of the investments into important projects and constructions using government bond fund is currently very high. To carry out the works in the approved portfolio, at least 150 trillion dong of government bonds must be mobilised. This figure does not include the increase of the construction costs due to changes of construction material prices, labour costs, and exchange rate fluctuations, etc. In addition, in the next period, the budget must raise additional capital to carry out other urgent projects and constructions.
Facing the imbalance risk between demand and capacity to mobilise financial sources, to solve this problem, Ninh said the government would review and classify the projects that are in investment policy. The uncompleted projects and constructions that might be suspended due to the short mobilisation of government bond fund might be balanced from the budget to maintain the implementation process. For highly effective projects that could be exploited to recover capital after completion, capital could be raised from various sources, including the government bond fund for investment.DAUTU
BANKING - Banks in Vietnam fighting to obtain market share
Vietnam’s banking market share picture in 2010 is expected to see many changes as commercial joint stock banks are making big efforts to increase market share while state giants keep some functions that are hard to be shared.
There are now 37 joint stock banks, five state commercial lenders, 50 foreign banks, two policy banks, 22 finance companies, and five joint venture banks across the country. Market share structure of the groups is divided into two halves clearly: state banks and joint stock rivals.
In the last 3 years, state banks have concerned as their market share started to be shared. Only the expanding number of members and the blossom of joint stock bank network put a heavier on the state-run lenders.
Statistics of the State Bank of Vietnam’s Monetary Statistics and Forecasting Department showed that the proportion of foreign banks, finance companies, joint venture banks and people’s credit funds remained modest in total systematic structure of deposits and credits, which hovered 15% of credit market share and roughly 10% of total deposits. The dominating proportion was held by a group of state lenders and the notably increasing group of joint stock banks.
Between the end of 2007 and 2010 early, the deposit and credit market shares between two groups saw a remarkable change. In Dec 2007, state lenders including Agribank, Bidv, Vietcombank, Vietinbank, MHB and Vietnam Social Policy Bank) accounted for up to 59.3% of the system’s credit market share, joint stock rivals 27.7% while respective deposit shares were 59.5% and 30.4%. At the end of March 2010, the inter-relative proportions were reported at 54.6% and 31.2%, 48.3% and 42.6%.
In fact, state banks held some advantages such as historical background, big size and wide network in the country. But in the reporting period, the joint stock group admitted extra 13 members converted from rural to urban banks and 3 newly-established others along with more strength in each member.
Such a move in the banking structure forecasts to continue in 2010 as the market enter process for newly-converted and established members has been shortened following the soaring affects of old members. In addition, 2010 will see a new move made by wholly foreign invested banks who have operated more fully and comprehensively.
However, state lenders still are dominating a bulk of market shares in two operations of capital mobilization and lending. A HCM City-based banker said, occupying the group’s market shares is very hard and has to take a long time.
“Many colleagues asked me why my bank has not yet expanded to the north. That’s a demand everyone can see. But the decisive factor is customer base. The shadow of state banks remains huge, in all locations including the northern region. Their base has been reinforced by customers who are state enterprises. It is difficult to share the market”, he stressed.
A big mortgage loan of hundreds of billions dong provided by a state bank to a state corporation or group is normal but with this, whether can joint stock banks accept exposure? “Behind state lenders is the state owners while we have to face pressure by shareholders”, he emphasized.
Le Cong, General Director of Military Commercial JS Bank (MB) said that each member must have a strategy embedded with each specific location in a bid to expand its market share. Typically, MB has confirmed its position in northern provinces but their operating results in the south have not reached as expected. Similarly, an active and efficient branch of a bank in the southern region may generate a profit equaling to a combined earnings of their entire northern network.
MB will focus on boosting operations in the south, enhancing investments in network, human resources and communications in exchange to the pleasure of customers, the general director confirmed.VIETBIZ
VN banks urged to go hi-tech
Viet Nam’s banking sector will have to develop more useful and modern services to meet future challenges, and the application of information technology and security systems will play a more important role in the future, experts said at a conference yesterday.
Speaking at the opening ceremony of Viet Nam 2010 Banking conference and exhibition in HCM City, Nguyen Van Giau, Governor of the State Bank of Viet Nam (SBV), said: “Developing more useful banking services, widening the use of the new Point of Sale (POS) for plastic money, and seeking more idle capital in rural areas are new trends in the banking industry.”
Other experts spoke on ways to push up non-cash payment in Viet Nam, encouraging Vietnamese consumers to adopt the new POS plastic money system for shopping.
In a recent survey carried out by the State Bank of Viet Nam’s HCM City branch, 70 per cent of banks said they needed better technology infrastructure for linking the POS machine with other partners.
“The success of POS would depend mainly on the service owners, especially if they don’t want banks to have records of their sales transactions so as to avoid paying more taxes,” said Bui Quang Tien, director of SBV’s Payment Department.
High POS fees between banks and the cost of promoting the service were also slowing the uptake of transactions using the machines.
“Viet Nam’s high growth rate, deeper financial integration, high ratio of youth population, and improved living standards as well as the high ability to use technology will boost POS use in the near future,” Tien said.
The nation’s banking sector took one major stop towards promoting non-cash payments by connecting the POS system between banks in HCM City yesterday. Ha Noi had established a similar link in September.
Representatives of several banks said they were paying attention to developing other non-cash payment services like mobile banking, internet banking and home banking.
At present, there are 28.6 million ATM cards, 46,000 POS machines and 11,000 ATMs in Viet Nam. The issuance of plastic money, including debit and credit cards grew by 150-200 per cent a year during the 2006-10 period, but the transactional amounts via the POS system was still very low at around 5 per cent.
Experts also spoke on risk management and security in retail banking, which they said was the most significant factor for the industry.
The conference, which ends today, was organised by the State Bank of Viet Nam’s Information Technology Department and the International Data Group. It was attended by international and national banks, finance institutions and IT companies, such as Polaris, EMC, APC, AgriBank, Vietin Bank and BKAV.VNS
Shipbuilding - Vinashin must pay its own debts – Vietnamese Minister
Troubled Vietnamese shipbuilder Vinashin is responsible for re-paying its own debts, including $60 million due later this month to international creditors, a government minister said on Wednesday.
The comments by Minister of Planning and Investment Vo Hong Phuc confirmed that one of the country’s biggest state-owned firms was unlikely to get financial aid from the government to tackle a mountain of debt that brought it close to bankruptcy.
“As we have said, we will make efforts so that Vinashin can operate profitably so that it can re-pay its debts on its own,” Phuc told reporters.
The government announced earlier this year that Vinashin, or the Vietnam Shipbuilding Industry Group, was near collapse under some $4.4 billion in debt it had racked up through rapid expansion and a slump in shipping during the global recession.
It ordered the bloated conglomerate to be reorganised, raising questions about repayment of the debt.
Vinashin’s first test comes on Dec. 20 when $60 million on a $600 million eight-year loan to a consortium of creditors led by Credit Suisse comes due, but it has asked for a delay.
The creditors were expected to be meeting on Wednesday to discuss the proposal.
Phuc, asked specifically if Vinashin’s responsibility for its own debts included the upcoming $60 million payment, replied: “That is correct, they must pay it by themselves”.
What happens to Vinashin will set the tone for Vietnamese borrowing in the near future. Should Vinashin fail to make its debt payments, not only would the cost of capital rise for other state-owned companies, but questions may be asked about the government’s ability to service its debt, analysts say.
Standard & Poor’s on Monday cut its long-term credit rating on Vietnam’s state mining group Vinacomin after signs the government might not help Vinashin with debt payments.reuters
FOOD/PROCESSING - Vinamilk awarded Best Enterprise by Forbes Asia
The Vietnam Dairy Products Joint Stock Co (Vinamilk - coded VNM) has lately been granted the "2010 Best Enterprise" award among Top 200 best enterprises in Asia by Forbes Asia.
It's the first time that a Vietnam-based enterprise to be acknowledged and awarded the title "Best Enterprise" by the professional financial magazine in the region.
According to Forbes Asia's statistics, Vinamilk was reported having revenue of $575 million, to be ranked the 16th position among 200 companies, net profit of $129 million and market value of $1.56 billion.
In the first 11 months of this year, VNM reached accumulative revenue of about 14.7 trillion dong, a year-on-year increase of 49 percent.VNNEWS
US to be Vietnam's biggest seafood buyer in 2010-15 period
Vietnam is now the biggest shrimp supplier to the Japanese market (39,000-43,000 tonnes per year), according to Vietnam Association of Seafood Exporter and Processors (Vasep).
However, currently, Vietnam is facing fierce competition among major shrimp exporting countries in the region such as Thailand, and Indonesia. Especially, the Thailand market has an export growth of nearly 30 percent as of 2009 whereas that of Vietnam decreased nearly 6 percent.
Meanwhile, the US market is under the growing period again and will soon become the leading market. At present, Vietnam is the US's fifth biggest shrimp provider (40-43,000 tonnes per year) and showing signals of reduction as of the end of 2009. Thailand now is the US's leading shrimp provider (180,000-195,000 tonnes per year) and maintains the growth of 5-10 percent/year.
Currently, the importing demand for shrimp items in the EU27 market remains high (465,000-475,000 tonnes per year) and quite stable. Vietnam now ranks at the eighth (21,000-25,000 tonnes) after Ecuador, India, Greenland, China, Thailand, Bangladesh and Argentina.
Oliver Massmann
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