Vietnam - News and Regulations

WTO entry positively influences Vietnamese economy



Institute for Central Institute for Economic Management (CIEM), in the morning of April 5, held the seminar on the impact of integration on the economy after three years of joining WTO. Reports at the seminar showed that international economic integration, especially WTO’s admission have positively influenced Vietnamese economy. Opportunities and challenges from the international economic integration process have put significant impacts on the economy. The most notable point is that total social investment after Vietnam joined the WTO reached the highest level ever, over 42 percent of GDP in 2009. Impact on economic growth is demonstrated by growth rates of 6.3 percent in 2008, 5.3 percent in 2009, relatively high numbers compared to the low or negative growth rates of many countries in the world in the context of the world financial crisis and global economic recession. In addition, the equality, transparency of legal environment and open level have also been improved after Vietnam became a WTO member. The preferential terms in trade agreements, bilateral and regional investment have been more reasonable and expanded, creating important conditions to attract investment in Vietnam. WTO accession has also had positive impact on the improvement of the legal framework; business environment and competition have been transparent and simplified; market of different types have been opened, especially the market for insurance services. However, joining WTO has also unexpectedly influenced labour and employment in the last three years. Unemployment rate of the country tends to rise, reaching 2.91 percent in 2009. Although the open level of domestic market is higher, it is not at the appropriate levels, especially the rise of imports and trade deficit. Talking about lessons learned after three years joining WTO, Dr Vo Tri Thanh, deputy director of CIEM said that the first lesson is that the economy would grow strongly if there is a combination of domestic reform and right position assessment. The second lesson is to identify the country’s values, position, strengths and weaknesses. It is also the lesson on integration of trade, of goods and services; on capital allocation; on policy response; on partner selections; on open level; and on commitment selections, etc.. VOV



MoF to propose to lift tax on dividend payment



The Ministry of Finance will propose to the government to remove income tax on dividend payment to the shareholders in order to encourage investors, the online newspaper Thanhnien reported on April 7.

Current tax shareholders have to pay on their dividend receipt is 5 percent that makes sense for investors as the Vietnam stock market hasn't seen a positive signal.VOV





Business - Foreign-invested businesses profit from exports of farm produce



Farm produce is considered one of the spearheads of socio-economic development in 2011. It is expected not only to increase farmers' incomes, but also balance Vietnam's export and import.

However, most of export earnings more often than not fall into the hands of foreign-invested businesses as they get the upper hand over domestic ones in terms of capital spending.

Domestic businesses at a disadvantage

At the March meeting on the export and import activities held by the Ministry of Industry and Trade, Do Hoai Nam, Chair of the Vietnam Pepper Association (VPA) and vice Chair of the Association of Coffee and Cocoa of Vietnam said although coffee exports earned huge profits in 2010 and early 2011, most of the money found its way into the pockets of foreign-invested businesses which took advantage of buying a huge volume of coffee when prices started plumping.

In the meantime, Vietnamese businesses could do nothing but sat idle, Nam said.

Unlike what happened in Vietnam, foreign exporters could hold no sway over the market in Brazil as the country has a policy of supporting domestic businesses by granting export quotas every three months.

Nguyen Thai Hoc, Chair of the Vietnam Cashew Association (Vinacas), said it is high time in the second quarter to buy materials from African countries for processing.

However, he said, it is not easy for them to access bank loans.

Hoc cited a case in 2010: Indian companies had bought all stocks of cashew before cash-trapped Vietnamese businesses could make any deal. So they had to accept a buy-back at throat-cut prices.

Nam said that foreign-invested (FDI) companies are ready to make a killing out of such buy-backs.

Hoc proposed that banks reduce the mortgage rate to 10-15 percent to help businesses access bank loans more easily.

Cash shortage - a burning issue

MOIT deputy minister Nguyen Thanh Bien attributed the cause of cash shortages to poor coordination between domestic businesses and banks.

Nam said it is not too difficult to solve the problem as the government has already fixed a limit on the amount of loans banks can help businesses with each farm product.

He said low interest rates are not the only instrument domestic businesses are looking for. They all need to get loans when necessary.

According to Nam, banks should give priority to those businesses who are operating well.

Tran Phu Minh, general director of the Vietnam Development Bank, said that banks are required to ensure the safety of credit.

Sharing Minh's view, Tran Hong Hanh, deputy director general of the Credit Department under the State Bank of Vietnam, added that loans will be available if businesses can prove effective in operation.





Finance and banking - Interbank average interest rate falls between March 26 and April 1



The State Bank of Vietnam (SBV) has announced the banking operations during the last week of March 2011.

Accordingly, the interbank trading turnover in the last week of March increased 17.6 percent in dong and 38.8 percent in US dollar. The dong interest rate slipped by 0.07-0.44 percent per year.

Both dong deposit and lending rates remained stable against the previous week. In particular, the dong saving rate was commonly at 13.5-14 percent per year and the US dollar demand deposit rate was at 0.2-0.5 percent per annum, less than 12 months at 4.2-5.8 percent pa and from 12 months and longer at 4.5-6.0 percent pa.

The dong lending rate for agriculture and rural development and export was at 14.5 percent per year while it was 16-18 percent per year for other business and production sectors and 18-22 percent per year for non-production sector. The US dollar lending rate was commonly at 6-7.5 percent per annum for short terms and it was 7-8.5 percent pa for medium and long terms.

According to the report from commercial banks, up to March 30, 2011, the total trading turnover in the interbank market reached approximately 157.727 trillion dong and $5.714 billion, averaging at 31.545 trillion dong and $1.142 billion per day, increasing 17.6 percent in dong transactions and 38.8 percent in US dollar transactions from the previous week.

During the reported week, the dong transactions occurred mainly for short terms (overnight and one week), with a total trading turnover of 97.142 trillion dong, equalling to 62 percent of the total trading turnover. Meanwhile, the transactions in US dollar were mainly for overnight term and three months, of which, the total trading value for the overnight term reached $3.983 billion, or 70 percent of the total trading turnover in US dollar. The transactions for long terms of 6-12 months accounted for small percentage.

The interbank average interest rate in dong dropped by 0.07-0.44 percent per year whereas the US dollar interest rate in the interbank market increased slightly.

Till March 30, 2011, the dong average interest rate in the interbank market fell in almost terms (overnight, 1-2 weeks, three months and demand deposit) by 0.07-0.44 percent per year while the interest rate for 6-month term remained unchanged, 1-12 months terms saw a sight increase by 0.06-1.47 percent per year week on week.

Notably, the overnight interest rate in the week decreased 0.23 percent from the previous week but still at high level of 13.24 percent per year. The average interest rate for remaining terms hovered 12.86 percent and 13.5 percent per year (excluding the demand deposit rate).

As for transactions in US dollar: except the average interest rate for 1-2 months tended to decrease, the average interest rate of US dollar in the interbank market increased in remaining terms over the previous week.

The US dollar overnight average interest rate was at 0.55 percent per annum, up 0.02 percent pa w-o-w and the average interest rate for remaining terms ranged between 0.81 percent pa and 3.3 percent pa.

Regarding the forex rate issue, commercial banks are now listing the FX rate at 20,910-20,915 dong/US dollar (buying-selling prices).




SBV should consider plan to raise compulsory reserves to 7-8pct







The State Bank of Vietnam should consider a plan to increase the compulsory reserve ratio up for 7 percent - 8 percent, instead of turning a blind eye to some commercial banks who violate the deposit rate ceiling at 14 percent/year.

After the noisy cases KienlongBank pushed up saving interest rates to 15.7 percent and Western Bank offered the deposit rate of 17.8 percent per year compared with the ceiling at 14 percent set by the State Bank, the market order was maintained for some time.

But now, this order has been disturbed. Currently, the saving interest rate of 17 percent per annum has been recorded by many banks for customers in many different ways.

According to the general manager of a commercial bank, when implementing the tightened monetary policy, the State Bank understood the tension of liquidity clearly in the banking system. And this tension has increased due to the interest rates controlled at 14 percent per year. In the meantime, the State Bank could not spend money because the credit growth target of below 20 percent, total payment means increasing of 16 percent would be broken. So, now, on one hand, the State Bank has still declared "strict handling of interest rate ceiling" but in reality, it also has ignored.

And surprisingly, it was too long since the State Bank set the ceiling interest rate of 14 percent per year, there were no additional cases other than the cases of Tecombank, Kienlongbank or West Bank pushing up the interest rates to exceeding the ceiling, though at present, this reality is not the unique.

However, the aforementioned general director said, behind that "ignorance", as dong is to continue "stretching as strings," the State Bank should consider a plan to increase the compulsory reserve ratio to 7 percent - 8 percent per year. Thus, the State Bank will have approximately additional 200 trillion dong. This amount will be re-distributed (re-lent) by the State Bank to banks with liquidity difficulties in the form of refinancing through collaterals or mortgagee capital with 14 percent per year.

This solution, of course is good for banks facing liquidity problems because they borrow loans from the State Bank with interest rates at below 14 percent, much easier to mobilise the capital from the market (18 percent), but this is not good for those who do business seriously, and have good risk management. dtchk

Banks lower gold saving rate



Some banks have recently reduced the gold deposit rate. At Vietnam Export Import Commercial Joint Stock Bank (Eximbank-EIB), the highest gold saving rate is now at only 0.9 percent per annum for three month term and it is only 0.2 percent pa for terms of from six months.

Viet A Commercial Joint Stock Bank (VietABank) also lowered the gold deposit rate whereby the bank's highest gold saving rate is now at 1 percent pa for 3-month term and it is 0.5 percent pa for terms of from six months.

At the same time, many banks also cut down long terms and offered the longest term of 11 months. Some banks such as An Binh Bank and Sacombank are applying the sole gold saving rate for all terms.

According to banks, the reduction of gold deposit rate is inevitable because the State Bank of Vietnam (SBV) has tightened the gold lending operations at banks.vns





CURRENCY - Big firms crying for capital shortage



Petrolimex lost 2.650 trillion dong because of forex rate difference, including a loss of more than 1.850 trillion dong due to the State Bank of Vietnam's latest forext rate increase on February 11, it reported on April 4 when the online handing-over conference was held by the Ministry of Industry and Trade.

So Petrolimex's leaders asked the government's permission in purchasing US dollar (as needed) according to a fixed foreign exchange rate.

Previously, Vinashin Group continuously sent documents to ask loans at an interest rate of 0 percent to pay salaries to its employees. In addition, the shipbuilder also asked tax incentives in a year for null contracts till the end of December 2012. The asking of supports is avoidable amid Vinashin is undergoing restructure process.

Economists said the fact that state giants took the reason of capital shortage or difficulties in input materials to ask preferential mechanisms was normal. Every time EVN proposed a rise in electricity price, it also offered the losses of up to trillions of dong to remark that the price increase was force majeure. Even as electricity price was raised by 15.28 percent sharply from March 1, the electricity sector still confirmed the adjustment was not enough.

Earlier, Vietnam National Coal and Minerals Group or Vinacomin recommended an increase in coal price to the government with the reason that they sold coal to EVN at lower cost prices and had to offset 3 trillion dong. Therefore, the group wanted to sell products at market prices. If not increase prices, the coal industry will see a huge loss of 5.8 trillion dong, 30,000 employees are under threat of unemployment.

Analysts criticised that the government's attitude was not definitive. In this context, the government needs to categorise support objectives who should be small to medium sized enterprises.

The government agreed to extend CIT for SMEs, and super sized firms to 1 year, which is estimated to amount to 7 trillion dong. dtchk


Economy - Vietnam Q1 trade deficit relatively safe



Vietnam trade deficit is estimated to reached $3.03 billion or 15.78 percent of the export revenue in the first quarter of this year (GSO source). The rate was the lowest since the country joined the WTO in 2007 and relatively safe, Nguyen Thanh Bien, deputy minister of Industry and Trade told the online newswire VnExpress on April 5.

The figure showed the positive signal while the Ministry of Industry and Trade (MoIT) is taking measures in an effort to cut down the trade deficit to 16 percent of total export revenue this year compared with earlier target of 18 percent, Bien said.

However, Vietnam exporters are facing with high lending interest rate on the country's recent tight monetary and fiscal policy.

Nguyen Tan Dung, prime minister of Vietnam ordered the related ministries to continue measures to restrict the trade deficit as intense exchange-rate volatility and an imbalance in foreign-currency supply and demand.vns





PRODUCTION - Footwear exports revenues exceed $1b in Q1



Footwear continued ranking third after garment and crude oil with export revenues fetching almost $1.3 billion in the first quarter of this year.

The Ministry of Industry and Trade said that a year-on-year increase of 29.7 percent in export revenues was attributable to rising demands as the world economy continues its recovery trend.

The European Union continued to be the biggest market for Vietnam's footwear, buying $356 million worth of products in the first two months of the year. It was followed by the US and Japan that imported $230 million and more than $54 million, respectively, worth of Vietnam's footwear.

Vietnam's footwear exports to China, the Republic of Korea and other markets also rose.

At present, the nation's footwear has been exported to 50 nations and territories in the world and ranks fourth among the world's top ten exporters with major products being sport, leather and canvas shoes and sandals of all kinds.

The Vietnam Leather Footwear Association said Vietnam is likely to achieve export revenues target of $5.5 billion this year in the light of favourable conditions as well as the EU's removal of anti-dumping duty on Vietnam's leather-capped shoes on April 1.dtchk





Property - HCM City: rental prices for office spaces decrease while for retail spaces increase



Savills Vietnam, at the press on overall situation of the real estate market in HCM City in the first quarter of 2011 held on April 5, said that in the first quarter of 2011, leasing price for office spaces in HCM City continued falling by three percent compared to the fourth quarter of 2010, standing at about $29 per square metre per month.

Meanwhile, rental price for retail spaces on the overall market rose averagely by one percent compared to the previous quarter, standing at $75 per square metre per month.

Truong An Duong, Head of Savills Vietnam's Market Research Department, said in the first quarter of 2011, six new office buildings with total spaces of about 70,000 square metres were added into the market, increasing the total supply by seven percent compared to the fourth quarter of 2010, reaching 1.1 million square metres.

The significant increase of supply has lowered lease rate by three percentage points, reaching 80 percent. Of that, grade B office spaces still account for the largest proportion of supply of 46 percent, up by five percent compared to the previous quarter. Most of office building owners have lowered rental rate when the supply increased in order to retain existing tenants and attract new customers to fill the vacant area.

The increase of leased spaces by 45 percent of grade B office compared to the previous quarter has shown the high demand for this segment. This is because of the competitive prices along with good location, services, and facilities.

In HCM City office leasing market, many customers tend to move from grade A to grade B office spaces, and grade B to grade C office spaces. The central area still attracts the highest number of tenants with total leased spaces increased by 33 percent in district 1 and by 21 percent in district 3, compared to the previous quarter.

Experts from Savills said that customers are now having various options in both prices and locations due to the abundant supply. The demand for office spaces in the first quarter of 2011 increased mainly due to the expansion of the operating businesses.

On the other hand, the demand for office spaces of domestic banks tends to increase when more branches have been opened in office buildings. Since newly and additionally registered FDI capital of HCM City rose 262 percent in the first quarter of 2011 compared to the same period of last year, the demand for office spaces is forecasted to increase.

Predicting the future of HCM City office leasing market, Savills said that from 2012, approximately 960,000 square metres of office spaces would be added in the market, which could cause leasing price to further decrease.

Total supply in 2011 is expected to be 140,000 square metres, down by 28 percent compared to the same period of last year. The future office buildings mainly locating in District 1, 4, 7 and Tan Binh are forecasted to attract large number of tenants in the future, as these districts are near the downtown area with good transport system and leasing prices are reasonable.

Contrary to the decline of leasing office price, rental prices for retail spaces in HCM City tend to rise, though it was only a slight increase. Average rental rate rose by one percent compared to the previous quarter, standing at $75 per square metre per month.

According to Duong, the main cause is the changes of macroeconomic factors. The price increase has lowered lease rate of the market by about three percent compared to the previous quarter. Demand for retail spaces in downtown area might increase in short and medium terms as many international retailers are preparing to enter the market. However, rental price increase in retail centres might lead tenants to find retail spaces at the stores located on major roads with more reasonable prices.

In the first quarter of 2011, two new retail centres were added into the market, increasing the total supply of the market by about 7,000 square metres.

There are currently seven commercial centres, 19 shopping malls, seven retail podium, 59 supermarkets and three wholesale centres with total area of about 630,000 square metres, slightly up by one percent compared to the previous quarter. In the first quarter, retail spaces in the inner city increased by 10 percent, accounting for the highest market share in the retail market.

Central business district remains the most attractive location for investors and retailers due to favourable location and high revenue. However, this is the area that accounts for smallest market share among the three areas, because of the limited area and high land prices. District 2 and 7 are the locations of new urban zones which have been attracting large number of high-income earners. Therefore, shopping demand as well as demand for retail centres in this area is huge.

The rapid growth of retail market is one of the key elements that helps Vietnam become an attractive investment location. However, too high leasing price in Vietnam is the major challenge for both existing and future retailers. vov



Resources-mining - PetroVietnam sells $2.7b to banks



PetroVietnam, the national oil and gas group, has sold total $2.7 billion to banks during the first quarter of 2011, the PetroVietnam chair Dinh La Thang reported at a press meeting on Wednesday.

The move came after the government's regulation requiring groups and corporations to sell foreign currencies to domestic commercial banks with a view to limit the dollarisation on the market.

Last week, the SBV Governor Nguyen Van Giau said, till the end of March, 78 groups and corporations deposited $1.61 billion (including term deposits of $376 million) at banks. He ordered the term deposits would have to be sold to banks as well according to the government's direction.

Whenever demanding US dollar, the banks must resell to enterprises.

In Q1, PetrovVietnam's total output reached 6.02 million tonnes of conversion oil, including 3.68 million tonnes of crude oil and 2.33 billion cubic meters of gas. Also it sold 3.65 million tonnes of crude oil of which 1.96 million tonnes were exported, some supplied to Dung Quat refinery and some oil volume drilled overseas.

During the reported period, PetroVietnam provided 3.76 billion kWh to the national grid, produced 218,400 tonnes of urea fertiliser.

In this quarter, the group targets to drill 5.68 million tonnes of conversion oil with a revenues of more than 152 trillion dong.vns



Hiap Seng secures S$10.5m Vietnam refinery contract



Mainboard-listed Hiap Seng Engineering, a specialist integrated engineering group for the oil-and-gas, petrochemical and pharmaceutical industries, said yesterday it has secured one of the five turnaround maintenance contracts awarded for Vietnam's Dung Quat Refinery worth $8.4 million (s$10.5 million).

Under the contract, Hiap Seng will provide maintenance, overhaul and repair services including inspection, testing and cleaning of process equipment parts for the refinery.

Awarded by Binh Son Refining & Petrochemical, a unit of PetroVietnam, the 148,000 bpd Dung Quat Refinery is located in Binh Son District, Quang Ngai Province.

This refinery turnaround maintenance work is expected to commence in July and is due for completion by September.

The contract is expected to have a positive impact on Hiap Seng's financial performance for the financial year ending March 31 next year.vns



Infrastructure - EVN owes PetroVietnam 5tr dong



Vietnam Electricity Group (EVN) still owes PetroVietnam Group five trillion dong cost for electricity purchase, which has caused many difficulties for the national power group, the PetroVietnam chair Dinh La Thang stated at a press meeting on April 6.

"Our company is very difficult because of not yet collecting money. But we also sympathise with EVN amid the current context when EVN is suffering losses due to selling electricity at below production cost price. We much need to collect money but we halted electricity production which was not for the reason that EVN has not yet paid", he noted.

To tackle these difficulties because of EVN's debts, Dinh La Thang said, PVN's leaders could finance its affiliate PetroVietnam Power Corp�who sells electricity to EVN without payment�and PetroVietnam Gas Corp.

At the press meeting, Phung Dinh Thuc, general director of PVN was quoted as saying that the group inspected all projects being conducted or to be conducted to cut, extend or delay some works with a total capital of over 6 trillion dong.

As for urgent power projects, we will have to speed up construction progress and not extend or delay any project, he confirmed.

In the first quarter of 2011, total revenues of PVN reached more than 151 trillion dong, a year-on-year jump of 59.4 percent, contributed 36.5 trillion dong to the state budget, up 35 percent against one year earlier.

Separately, the earnings in foreign currencies, according to Dinh La Thang, gained $2.7 billion which has been sold to banks in line with current regulations. vov


Legal - Rules to limit brokerage risks



The Ministry of Finance Circular No 226 governing financial safety for securities companies took effect April 1. Vietnam News reporter Mai Huong spoke to Pham Hong Son, director of the Securities Business Management Department of the State Securities Commission, about it.

How does Circular 226 modify existing regulations?

With regard to current regulations monitoring the activities of securities companies, Decision 207 partly deals with the calculation of companies' usable capital. But it is an old method, and deals only with cash flow (referring to the assets able to be converted into cash within 30 days).

New regulations apply Basel II standards, which were originally applicable to credit institutions. These regulations are applied even more rigorously to securities companies as they take companies' operational risks into account. The total risk value of a company measures market risk, operational risk and liquidity risk. Previously, we just counted company debt, but now other risks are taken into consideration.

The new regulations monitor the majority of a company's financial operations. The circular's content is more effective and comprehensive for evaluating the overall operations of securities companies.

How will the circular affect the performance of securities companies, particularly small capitalised ones?

In the view of the drafting committee, the main objective of the circular is to allow securities companies to calculate their financial adequacy ratio themselves. While some companies are better at risk management, there are others that focus on doing business and fail to give enough priority to risk management. The are implicit risks for these companies that they are failing to recognise.

New regulations will help companies review and re-evaluate their entire operations, and recognise their risk levels so that they can find suitable solutions to ensure business safety.

The State Securities Commission will only use the usable capital ratio (total usable capital to total risk value) to oversee their operation. Companies that cannot guarantee achieving the required ratio will be put under control (if the ratio hovers around 120-150 percent in all reports for three consecutive months), or will be put under special control (if the ratio is less than 120 percent, or the company's preventive measures fail to tackle the problem).

Some people have said that the circular contains some shortcomings when it comes to calculating risk. What do you think?

I disagree. According to international principles, any financial institution must ensure it has a certain level of usable capital and make certain their assets can be liquidated within 90 days. In some countries, the time frame for liquidation is just 30 days.

Securities companies cannot invest in non-liquid stock. Their main objective is to ensure they have enough liquidity and a certain level of usable capital for their safe operation. They must also guarantee that their portfolio is liquid. If not, their financial status would be negatively affected.

In addition, apart from the circular's regulations, there are also investment restrictions on securities companies following Decision 207.

How do you assess whether companies can meet the financial adequacy ratio stipulated in the circular?

Circular 226 does not stipulate what the compulsory charter capital requirement is for securities companies. Regulations are there just to gauge the usable capital ratio. If companies satisfy this ratio, they should perform well. Even if a company is big, if it cannot meet required standards it will be put under control.

The drafting committee consulted with securities companies and asked them to test their ratio from June 2010. Basically, most companies can meet the requirement. These regulations are new, but good for securities companies and they need to be familiar with them.

From May 15, companies will have to report monthly according to new regulations. However, this year, companies will not be put under control if they do not meet the circular's safety requirement. After one year, companies that violate the regulations will be put under control or special control.vns



MoF to propose to lift tax on dividend payment



The Ministry of Finance will propose to the government to remove income tax on dividend payment to the shareholders in order to encourage investors, the online newspaper Thanhnien reported on April 7.

Current tax shareholders have to pay on their dividend receipt is 5 percent that makes sense for investors as the Vietnam stock market hasn't seen a positive signal.VOV


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Oliver Massmann

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General Director – Duane Morris Vietnam LLC



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