Vietnam - News and Regulations

ECONOMIC OUTLOOK - Foreign banks are optimistic about Vietnam's economy

General Director of Standard Chartered Bank (SCB) Vietnam Louis Taylor said challenges for Vietnam this year include inflation, loss of confidence in value of currency and trade deficit. However, SCB is still optimistic about Vietnam's economy and sees many growth opportunities in the country.
Sharing his viewpoint on Vietnam's economy in general and its financial and currency markets in particular this year, Taylor said SCB has listed a group of countries called the "seven-percent group", of which members are the countries expecting to obtain economic growth of seven percent or more in the next 10 years. This is an impressive growth rate and Vietnam is a member of that club.
That also means SCB has seen opportunities to develop in Vietnam, of course, along with issues such as inflation, the loss of confidence in value of currency and trade deficit. However, SBC believes that Vietnam would be one of the three Asian economies achieving higher economic growth in 2011.
Regarding the opportunities for banking operations, Taylor said the number of bank accounts in HCM City grew by 400 percent from 2006 to 2010. The growth rate of 400 percent in bank account number, with nearly 20 millions bank accounts in 2010 compared to over five million bank accounts in 2006, has shown the huge potential for the development of the sector.
Foreign banks operating in Vietnam started receiving completely equal treatment since early this year. Talking about advantages of SCB Vietnam in developing banking and financial products, Taylor said in Vietnam, domestic banks hold more than 90 percent of market shares in several market segments. SCB would not develop its system of branches nationwide with over 200 branches as domestic banks do in order to serve customers. It is because customers are being well served by domestic banks. Nevertheless, SCB would expand services and improve service quality to better serve its existing and future customers.
The financial market of Vietnam has just developed for over 20 years. Although there has been fast and efficient growth, the market has not yet been mature as markets of other countries. SCB Vietnam is working actively with the State Bank of Vietnam (SBV) to ensure that the policies would not only better promote the growth of foreign banks, but also contribute to the overall development of Vietnam's financial market.
Assessing the route to raise charter capital as stipulated in Decree 141/2006/ND-CP, which is applied for domestic banks, as well as the requirement to increase capital of foreign banks operating in Vietnam, Taylor shared that the requirement on having charter capital of three trillion dong is to ensure the banking system's development and safety, and is also enough to help Vietnam capture the opportunities for development. In addition, SBV also intended to encourage smaller banks to merge and form a larger entity. However, this aspect of the above decree has not achieved great success, because most banks want to raise capital and develop independently.
Not all banks have been able to meet the deadline of the charter capital increase requirement; therefore, there has been an extension of one year for implementing this.
According to Taylor, it is very good and important if a bank is strong and having good capital, but if capital is larger than the management capacity, it could lead to unpredictable problems in the future. In fact, the number of good lending opportunities does not grow along with the increase of charter capital. When bank is in excess of capital, their credit quality would become lower, because they must find every ways to use their capital, in order to ensure profitability at an appropriate level for shareholders and that reduces the safety and health of the banking system.
He added that therefore, state management agencies need to balance reasonable level of capital for the banking system and the capital beyond banks' capacity; but the minimum level of three trillion dong seems to have achieved this balance.DTCHK


FOREIGN DIRECT INVESTMENT- Japan's second biggest bank wants to pour more capital into Vietnam


Vietnam is considered one of three most attractive investment destinations for Japan's second biggest bank, Mizuho, in 2011.

Facing the increasing competitive pressure in Japan, leader board of Mizuho Financial Group plans to promote their operations more in foreign countries, especially in emerging markets in Asia.

Answering the reporter of Reuters recently, Mizuho's CEO, Yasuhiro Sato, said that his bank is building a detailed plan to expand the operations in Vietnam, Burma and Bangladesh. The expansion may be carried out in April this year.

Marking its presence in Vietnam since 1996, Mizuho now has two branches in Hanoi and HCM City. By the end of 2010, both two branches got approval from the State Bank of Vietnam (SBV) to hike chartered capital from $15 million to $133.5 million. This was considered the starting step for the wave to scale up chartered capital of a series of branches of foreign banks (Deutsche Bank AG, OCBC, Chinatrust, and Huanan) in Vietnam recently.

Apart from Vietnam, Mizuho's leader also said that Mizuho will soon open some offices in China and India. According to Bloomberg, Mizuho together with BlackRock, the world's biggest fund management firm, are seeking to buy stake into some large financial institutions in Asia.

Last year, Mizuho also bought 2 percent stake into BlackRock.DTCHK




POWER - Vietnam government calls for fairness in rolling power blackouts


Vietnam's government told regional authorities to handle rolling power blackouts in an "equitable" fashion as it said the Thua Thien Hue province will experience electricity cuts starting next month.

"Politically or socially important" events should be given priority in receiving power during the current dry season, the government said in a statement on its website today, without providing clarification of what events meet those criteria. Provincial authorities should approve a list of users that can be exempt from power cuts, according to the statement.

Thua Thien Hue Power Co. plans to cut power in the central province by 9.3 percent in March and April, by 21.1 percent in May and 13.7 percent in June, the government said. Priority will be given to industrial production and agricultural irrigation, according to the statement.

Blackouts were set to affect some of the country's 91 million people from February 15, Vietnam News reported February 10. Record-low levels at water reservoirs are cutting hydropower production, state-run Electricity of Vietnam, known as EVN, said yesterday. The utility said last month it faces a shortfall of 3 billion kilowatt-hours in this year's dry season.

Vietnam may increase the cost of average household electricity by a record 15 percent next month, Vietnam News reported February 14. EVN sells electricity at 30 percent to 40 percent below production cost, it said in a statement today.

Rolling outages may inconvenience overseas manufacturers using Vietnam as an export base. Severe power cuts "would make it very difficult for me to explain to the board that we want to stay here and want to develop the company here," Boy Schallert, managing director of Aalborg Industries A/S in the northern city of Hai Phong, said by telephone this week. The company has no imminent plans to leave the country, he said.

Vietnam depends on hydropower for about 37 percent of its electricity, followed by gas at 36 percent and coal at 16 percent, according to statistics from the Association of the Electricity Supply Industry of East Asia and the Western Pacific. bloomberg



FINANCE - Vietnam raises refinance rate 200 bps to 11 pct
Vietnam's central bank raised a key interest rate on Thursday in an attempt to answer growing calls for concrete steps to curb double-digit inflation after the bank devalued the currency last week. The State Bank of Vietnam (SBV) increased the refinance rate by 200 basis points to 11 percent while keeping the base rate, which served as the benchmark until recently, unchanged at 9 percent and the discount rate at 7 percent. Analysts said the move may help support the currency, which had been slipping after Friday's 8.5 percent devaluation, as well as curb inflation. But further steps would be necessary with the consumer price index expected to keep rising after soaring to a near-two year high of 12.2 percent in January.
"The hike is essential, especially after the devaluation of the dong last week that will add to inflation pressures," Australia and New Zealand Banking Group Ltd (ANZ) said in a note after the move. "However, our analysis shows that today's move alone will still be insufficient for the SBV to achieve its 7 percent inflation target by the end of 2011. Therefore, we expect the authorities will have to raise rates again this year."
The central bank offered no explanation for the change. The last policy rate increase was in November when the SBV boosted all three key rates -- the base rate, the refinance rate and the discount rate -- by 100 basis points.
Analysts said the move was expected to close a tap of relatively cheap money that larger banks had been using to buy government bonds and re-lend to smaller, less powerful banks at higher rates. Some observers expected the big banks to redirect some of the funds into commercial lending, but others said the move was more likely to push up lending rates, which are already as high as 20 percent.
The State Bank on Friday devalued the beleaguered dong by 8.5 percent, its biggest move since the 1997-8 Asian Financial Crisis, and narrowed the band in which the currency is allowed to trade against the dollar to 1 percent from 3 percent on either side of the mid-point..
Since then, the interbank exchange rate has slipped outside the band and unofficial, or black market, rates dropped about 3 percent to around 22,000 dong per dollar from about 21,350 on the day of the devaluation. Economists welcomed the devaluation after a four-month mismatch between official and unofficial exchange rates, but a chorus of observers, including the International Monetary Fund, said further steps were needed to curb inflation and make the devaluation stick.
"They are trying to drive interest rates up in the hope that deposit rates go up to the point that people start holding dong," said one economist in Vietnam who declined to be identified. "They should have done this about eight months ago." The currency has been devalued by more than 20 percent since mid-2008 in the face of high inflation, wide trade and fiscal deficits and low confidence in the local unit.
The State Bank of Vietnam on Thursday also increased the overnight rate for electronic interbank transfers and a rate for specific types of clearing loans from the central bank to commercial banks, it said on its website, www.sbv.gov.vn.
In a move that is likely to exacerbate inflation, the cabinet was meeting on Thursday to discuss increasing the price of electricity by an average of up to 18 percent and also a hike in the price of petrol. All three major ratings agencies -- Fitch, Standard & Poor's and Moody's -- downgraded Vietnam last year citing macroeconomic imbalances.
"The key question driving the outlook for Vietnam's 'B+' rating is whether the authorities will re-orient monetary and fiscal policy towards lower inflation and medium-term sustainable public finances," said Andrew Colquhoun, Head of Asia-Pacific Sovereigns at Fitch.
He said the authorities should take steps to "meaningfully" control inflation and may need to abandon their credit growth target for the year, which is 23 percent.
"Accommodation of higher inflation associated with renewed downwards pressure on the dong would see negative pressures build," he said.VNS

VINASHIN – STORY CONTINUED - Vietnam widens indebted shipbuilder probe: report Authorities in Vietnam have widened their investigation into state-owned shipbuilder Vinashin, reports said Thursday, after the firm's debts threatened the country's global financial reputation.
Trinh Thi Hau, 47, former finance director at a Vinashin-affiliated company, has been arrested for allegedly having "intentionally violated state regulations on economic management, resulting in severe consequences", Tuoi Tre newspaper reported.
Vinashin's former director general of finance, Ho Ngoc Tung, faces the same charge but is undergoing medical treatment in Australia and has not been arrested, the report said, adding he is one of 10 people being investigated.
Seven of the 10 have been detained, Tuoi Tre said.
The first to be arrested last August was Pham Thanh Binh, former chair of the Vietnam Shipbuilding Industry Group (Vinashin). Binh, 57, faces the same accusation of violating state economic management regulations.
In December Vinashin, whose $4.4 billion debt pushed it to the brink of bankruptcy, reportedly defaulted on the first $60 million instalment of a $600 million loan arranged by Credit Suisse in 2007.
Tuoi Tre, citing investigators, said that Hau and Tung allegedly approved spending of 60 billion dong (now about $2.7 million), some of it on non-approved projects including a steel purchase that turned out not to exist.
Investors and analysts fear the scandal at Vinashin is symptomatic of wider problems at state-owned firms. Ratings agencies cited the firm's troubles in downgrading Vietnam's sovereign ratings.TT

RESOURCES - Idemitsu-led firms find oil, gas offshore Vietnam
Three Japanese firms led by project operator Idemitsu Kosan Co (5019.T) said on Thursday they have found oil and gas in an offshore exploration well in southern Vietnam, as Japan's energy sector steps up exploration activity in Southeast Asia.
The companies did not give detailed figures on reserves, saying they would make evaluations later. The discovery was in the Dai Nga structure in Blocks 05-1b and 05-1c, about 300 km (188 miles) southeast of HCM City. A wholly owned Idemitsu unit and JX Nippon Oil & Gas Exploration, part of JX Holdings (5020.T), each holds a 35 percent stake in the blocks, while an Inpex Corp (1605.T) unit has the rest. The three firms entered into a production sharing contract with PetroVietnam in 2004.VNS

INFORMATION TECHNOLOGY - Vietnam moves to enhance Internet development
The Internet is developing strongly in Vietnam and the country always creates favourable conditions for Internet activities, said Foreign Ministry spokesperson Nguyen Phuong Nga. Nga made this statement while answering reporters' questions on Vietnam 's response to US Secretary of State Hillary Clinton's speech at the George Washington University on February 15 on Internet freedom, mentioning Vietnam, at the ministry's regular meeting in Hanoi on February 17. According to Nga, by December 2010, the number of Internet users in Vietnam had reached nearly 26.8 million, accounting for 31.11 percent of the country's population. More than 1.5 million had their own blogs. However, like other countries, all information on the Internet must abide by the law so that it does not affect the country's customs, social morality, public order and national security, said the spokesperson. "In Vietnam, the freedom and democratic rights of all people, including freedom of information and speech, are clearly written in the constitution and law, and are assured to be carried out," Nga affirmed.
In Vietnam, all citizens are protected by the law but at the same time they must respect the law, she said, adding that any person who violates the law would be treated justly under the legal regulations.
"We believe that in relations among countries, every difference should be exchanged in a constructive spirit of mutual respect and understanding, with no intervention in each other's internal affairs," Nga stressed.REUTERS



ENVIRONMENT - Prime minister curbs emission-generating technologies


Prime minister Nguyen Tan Dung has ordered that investment in technologies that release high levels of emissions must be halted, considering the fight against climate change and sea level rise a matter of life and death.
The government leader made the request at the second meeting of the National Steering Committee on the National Climate Change Response Target Programme in Hanoi on February 16.
Acting as Head of the Steering Committee, Dung reminded the committee members of the need for perfection of the general strategy on climate change and sea level rise, followed by the creation of competent action plans for prompt, drastic, uniform and long-term implementation.
He required the Steering Committee to promptly present a meticulous scenario on climate change for all sectors and localities to design their own action plans for specific fields.
To build works to deal with climate change and sea level rise, the sectors and localities should rely mainly on their own resources, PM Dung noted.

The Steering Committee's members recommended the increased leadership and instruction of the implementation of the National Climate Change Response Target Programme, policies and scientific research on climate change in 2011.
They also suggested international donors participate in activities of the directors Board of the Target Programme and agreed to focus on making climate change-related documents.
They agreed to deploy a national scientific and technological programme on climate change nationwide and make the best use of internal and external resources for the work.

According to scientists, Vietnam is one of the developing countries in the world that are most likely to be seriously affected by climate change, especially sea-level rise.
To proactively respond to these threats, Vietnam ratified the UN Framework Convention on Climate Change, the Kyoto Protocol and the National Climate Change Response Target Programme in 2008.
In 2010, the National Climate Change Response Target Programme focused on building related institutions, policies and action plans, organising communication campaigns, screening development plans and scientific and technological research, and mobilising international funding.

Vietnam has so far mobilised over 1.2 billion USD from international sources for activities in response to climate change after the first meeting of the Steering Board.
It has received pledges and is negotiating for a sum totalling 1.3 billion USD to fight climate change. vns




Oliver Massmann
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