BUSINESS IN BRIEF 20/1

Thai firms keen on energy projects in central Vietnam

A number of Thailand’s energy firms have come to provinces in central Vietnam this year to seek investment opportunities and sign cooperation deals to continue its projects.

Last week, EGAT International Co Ltd (EGATi) and B.Grimm Power Co had meetings with leaders of Binh Dinh Province to look into investment conditions for wind power projects in Nhon Hoi Economic Zone, according to the Binh Dinh Investment Promotion Center.

Pakorn Snguansuppayakorn, deputy general director of EGATi, said studies showed that coastal areas have much potential for wind power development. The province has zoned areas for wind power projects in the economic zone and this is a favorable condition for investors in the field, including EGATi.

According to the provincial leaders, the Nhon Hoi Economic Zone is holding great potential for wind power and the province will support investors to implement their projects. EGATi and B.Grimm Power Co will conduct surveys and feasibility studies for wind power investments in the province.

EGATi was established by the Thailand Power Corporation to carry out energy investment and trading projects in Asian countries, especially Laos, Vietnam, and Myanmar. In Vietnam, EGATi has a representative office in Hanoi and is investing in Quang Tri 1 thermal power plant with a capacity of 1,200MW under the BOT form in the central province of Quang Tri.

Meanwhile, B.Grimm Power Co invested in a power plant in Amata Industrial Park to supply electricity for the park in the southern province of Dong Nai.

Earlier, Thailand Banpu Public Co signed a memorandum of understanding (MOU) with Thua Thien-Hue Province on building and operating a thermal power plant with an initial capacity of around 1,200MW. If the project is of high economic efficiency, its second phase will be implemented with a capacity of 2,000MW, according to the province’s portal.

Under the MOU, the central province will support Banpu to conduct a survey for the project within 24 months.

Earlier this month, Thailand Outgrow Energy Consult Co came to Thua Thien-Hue Province to seek to cooperate with the province in the power sector. The company wants to build a thermal power plant using municipal solid waste.

Outgrow Energy Consult has invested in power plants with capacity of around 100MW or less using renewable resources like wind, solar power, geothermal energy, and solid waste.

Thai companies have poured more capital into the retail, consumer goods and processing sectors in Vietnam in recent times to capitalize on the nation’s steady growth and large population as well as its avorable location to enter Laos, Cambodia and southern China.

According to the Foreign Investment Agency under the Ministry of Planning and Investment, Thai investors had pledged a combined US$7.88 billion in 428 projects in Vietnam by the end of last month. Thailand is now Vietnam’s 11th biggest foreign investor.

The average investment of a Thai-invested project is US$18.4 million, well ahove US$14 million registered for a foreign project in Vietnam in general. Thai firms have invested in 200 processing projects worth nearly US$7 billion, accounting for 88% of their total investment capital in this market, followed by agriculture, forestry and fisheries with 31 projects worth US$235 million, retail and construction.

EVN: Thermal power plants at full tilt

Vietnam Electricity Group (EVN) has said thermal power plants are running at full throttle to meet growing demand and offset a drought-induced reduction in output at hydropower stations.

Demand for electricity this month is forecast to pick up 14% compared to the same period last year with some 495 million KWh needed a day. However, EVN said water flows to hydropower reservoirs in the central and southern regions continue declining strongly due to the prolonged drought caused by the El Nino phenomenon.

There are 81 operational hydropower plants of more than 30MW nationwide with a total capacity of 15,570MW, accounting for 40.4% of the country’s electricity capacity. Only 38 hydropower reservoirs will have sufficient water for generation, irrigation and water supply for downstream areas in the dry season with a total volume of 33.01 billion cubic meters.

Last year, water levels at hydropower reservoirs were 40-60% lower than the average of previous years, especially reservoirs in the provinces from the central province of Thanh Hoa southward due to the impact of El Nino.

The water shortage forced EVN to ask thermal power plants to operate at full capacity to help hydropower facilities store sufficient water for both electricity generation and irrigation.

EVN said by March 11, the remaining water volume of hydropower reservoirs was only 23.4 billion cubic meters, accounting for 69.1% of their capacity. Reservoirs in the central and southern regions have much less water than last year, including Hua Na, Binh Dien, A Vuong, Vinh Son, Pleikrong, Kanak, Buon Tua Srah, Dong Nai 3, Dak Rinh, Thac Mo, Ham Thuan, Dai Ninh and Tri An.

Particularly, the water levels at the hydropower reservoirs of Ialy and Cua Dat are 12.6 and 14.6 meters below the same period last year.

Earlier, the National Load Dispatch Center reported that many hydropower plants in the central region, including those with high capacity such as Ham Thuan and Buon Tua Srah, have either scaled down or halted generation.

By the end of last week, 15 out of 51 hydropower plants in the region had withdrawn from the competitive power generation market as they must prioritize irrigation and daily use of people in downstream areas.

EVN said power plants with a combined capacity of 3,893MW are commissioned this year, including 2,081MW from hydropower plants and 1,380MW from thermal power facilities. The plants include Lai Chau and Huoi Quang hydropower plants with 1,060MW and Duyen Hai 3 thermal power plant with 1,200MW.

SBV asked to rethink credit tightening for property sector

Thai firms keen on energy projects in central Vietnam, EVN: Thermal power plants at full tilt, SBV asked to rethink credit tightening for property sector, Banks in race to hike deposit interest rates, MOIT issues warning on virtual currencies

The Ministry of Construction has requested the State Bank of Vietnam (SBV) to reconsider a tightening of credit for the real estate sector to avoid leaving negative impact on the property market recovery.

According to a draft revision of the SBV’s Circular 36, the maximum ratio of short-term funds which banks can use to make medium- and long-term loans would be reduced from 60% to 40%. Meanwhile, the risk weight of loans for the real estate sector would be raised to 250% from 150%.  

The construction ministry said in a document sent to the SBV on Tuesday that businesses mainly use bank loans to carry out realty projects. At present, around 3,980 urban development and housing projects need a combined VND4,400 trillion, with bank loans accounting for 50-60%.

Outstanding loans in the real estate sector had amounted to VND392 trillion by end-2015, making up less than 10% of the banking system’s total.

The ministry said the recovering property market is well monitored and that there are no abnormal signs at the moment. Therefore, credit tightening may leave negative impact on the real estate market.

To ensure safety for the banking system and prevent a real estate bubble, the Construction Ministry petitioned the central bank to give a second thought to credit tightening and work out a road map for implementation.

The ministry said the maximum ratio of short-term funds used for making medium- and long-term loans should not exceed 60% as it will cause an imbalance in lenders’ capital. It proposed the risk index of loans for the property sector at 150-200% to ensure safety.

The Construction Ministry has petitioned the central bank to extend disbursements of the VND30-trillion home loan program. In case the SBV keeps the May 31, 2016 disbursement deadline unchanged, commercial banks should continue offering preferential rates for borrowers to build social homes and those meeting requirements to buy or rent social houses with support from the State budget.

The ministry said the home loan program has helped the real estate market recover, which is evident in rising property transactions, especially low-end apartments.

Loans pledged by banks account for over 98% of the VND30 trillion home credit package, or some VND29.5 trillion, and nearly 70% has been disbursed. Disbursements are expected to be 85% complete as of June 1 and 100% at the end of this year.

Electricity output in March surges 14 percent

The Electricity of Vietnam (EVN) Group forecasts national power generation in March to pick up 14 percent from the same month last year, averaging 495 million kWh of electricity every day.

EVN said that spare capacity on the electricity system will be seen in March as the maximum power consumption is calculated at around 25,640 MW while the system is able to generate from 31,100 MW to 33,600 MW in the month.

In the first two months of the year, the EVN’s total power yield stood at 24.86 billion kWh, 14.25 percent higher than the same period in 2015. Of the total amount, hydropower accounted for 24.62 percent, coal-fired thermal power 42.04 percent, gas-fuelled power 31.77 percent, petroleum thermal power 0.5 percent and imported power 1.07 percent.

Meanwhile, 23.22 billion kWh of commercial power were supplied for the group’s end-customers during the period, a year-on-year increase of 12.18 percent.

The Group will utilise capacity of its thermal power plants to ensure sufficient power for production in March as well as in dry season while running hydropower plants at appropriate level to serve water demands in downstream localities.

Last month, the Group released water from Hoa Binh, Thac Ba and Tuyen Quang hydropower plants for winter-spring crop farming in the midlands and northern delta.

Rice exports in February rise two-fold from last year

Vietnam shipped abroad approximately 440,000 tonnes of rice in February, up 5.44 percent against last month and 117 percent from a year ago, according to the Vietnam Food Association (VFA).

The rice exports were valued at 178 million USD with average FOB price was estimated at 405 USD per tonne.

The country exported 856,000 tonnes of rice in total for 348 million USD during the first two months of 2016. The amount also doubled that of the same period last year thanks to continued purchases from Indonesia, the Philippines and China.

The domestic price of rice is forecast to be on the rise in the coming time as severe drought and saltwater intrusion have been affecting large areas of rice in the Mekong Delta, while a large volume, around 1.4 million tonnes, of signed contracts is scheduled to be delivered in the coming months.

FrieslandCampina voted among 20 Best Places to Work in Vietnam

Dairy company FrieslandCampina Vietnam has been rated one of 20 Best Places to Work in 2015 in a poll done by executive search company Anphabe and global market survey giant Nielsen.

In the fast moving consumer goods (FMCG) segment, FrieslandCampina is in the top 10.

During its 20 years of operations in Vietnam, the company has always provided its 8,000 workers with the best of working conditions.

Every year the company makes a large outlay to develop human resources, provide its workers healthcare and help them develop soft skills.

This is for the third year the survey was done.

This year 419 companies in 24 sectors took part as nearly 22,700 people voted online.

FrieslandCampina Vietnam took part for the first time.

Bangladesh wishes to cooperate with Vietnam in oyster farming

Minister of Agriculture and Rural Development Cao Duc Phat held talks with Bangladeshi Minister of Fisheries and Livestock Muhammed Sayedul Hoque in Hanoi on March 16 to discuss measures to intensify cooperation in aquatic farming, particularly in oyster breeding for pearls.

At the meeting, Hoque introduced Bangladesh’s potential and advantages in aquaculture.

Bangladesh wants to coordinate with Vietnam in oyster farming and receive the country’s assistance in terms of technology and young oysters, he said.

The guest also proposed employing Vietnamese experts to study the environment and climate for oyster farming in Bangladesh.

Minister Phat suggested the two sides assign their offices to draft a cooperation agreement in the field.

He took the occasion to invite the Bangladeshi delegation to visit several oyster-breeding facilities in Vietnam.

Hoa Sen Group builds plant in Ha Nam province

On March 17, Hoa Sen Group started construction on a plant covering 20.4ha at the cluster of Kien Khe I industrial parks of northern Ha Nam Province at a cost of VND3,000 billion.

Once completed in September 2018, the facility is expected to produce steel pipes, galvanized steel tube, and uPVC and HDPE plastic pipes.

The plant construction will help improve the group’s production and supply capacity of steel and plastic pipes and meet demands of the northern market.

Currently, Hoa Sen Group holds nearly 40% of steel sheet market shares and nearly 20% of steel pipe market shares in Vietnam and its products are exported to more than 60 countries and territories across the globe.

Hoa Sen- the first Vietnamese business- shipped 20,000 tons of steel sheets to the US market in February, 2016.

Another foreign investor sells stake in Vietnam's Masan

Singapore's Orchid Capital Investments has become the second foreign investor to sell off its stake in Vietnamese consumer giant Masan Group Corp., since the beginning of this year, according to a Vietnamese media.

The private fund sold its 45 million shares, equivalent to a 6 percent stake, for around VND1.3 trillion (US$57.65 million) on March 14, according to business news website cafeF.

It cited an unnamed source as saying that the buyers were foreign companies, including Singapore sovereign fund GIC.

Earlier this month the Hong Kong subsidiary of Switzerland-based financial company Credit Suisse sold its 8.9 million shares in the company to two Vietnamese individual investors for VND660 billion (US$29.27 million), according to the Vietnam Security Depository.

Masan owns 32.53% of the company and another 13.37% through its subsidiary, Sunflower Construction Co., Ltd.

US private equity fund PENM II is another major foreign investor with a 5.36% stake, cafeF reported.

Thailand’s increased investments target Vietnam’s processing industry

Thai businesses had invested US$7.88 billion in 428 projects in Vietnam during the first two months of this year, ranking 11 out of 112 foreign investors in Vietnam.

Their investment was primarily focused on the processing and manufacturing industry with 220 business ventures valued at nearly US$7 billion, accounting for 47% of the total number of projects and 88% of investments in Vietnam.

Agriculture, forestry and seafood also attracted major investment from Thai businesses with 31 projects worth US$235.4 million.

Thai investments in Vietnam are mainly in the form of wholly foreign investment capital or joint ventures, 70% of which come from Thai businesses.  

Vietnam bolsters trade, investment in Germany

Minister of Industry and Trade Vu Huy Hoang met with about 50 German and overseas Vietnamese businesspeople at Vietnam Trade Office in Berlin on March 16 as part of his working visit to Germany to boost trade and investment between the two countries.

Speaking at the meeting, Minister Hoang briefed attendees on Vietnam’s socio-economic situation over the past years and its major orientation for economic, trade and investment development specified in the Resolution adopted by the 12th National Party Congress earlier this year.

He also answered inquiries from German firms on investment and trade climate in Vietnam following the country’s signing of the Trans-Pacific Partnership (TPP) and the EU-Vietnam Free Trade Agreement (EVFTA), as well as the establishment of the ASEAN Economic Community (AEC).

Some firms expressed their interest in developing material growing areas in Vietnam to serve the export of agricultural products and herbal medicines to Germany, EU and Africa.

Meanwhile, overseas Vietnamese businesses hoped that the Vietnamese government would facilitate their investment in the country as well as the flow of investment capital from Vietnam to Germany.

Minister Hoang said the ministry and Vietnam Trade Office in Germany are willing to provide support for enterprises to ramp up two-way trade and investment.

During his working trip at the invitation of Sigmar Gabriel, Vice Chancellor of Germany and also Minister for Economic Affairs and Energy on March 17-18, Minister Vu Huy Hoang is scheduled to attend several economic forums and meetings.

Banks in race to hike deposit interest rates

The list of banks taking part in the race to raise deposit rates continues to lengthen, and this has taken the interest rate on long-term deposits to 8.4 percent.

Joining small banks in the race now are not just small lenders but big lenders and even State-owned behemoths.

But the increase in interest rates is still confined to medium- and long-term deposits.

State-owned Bank for Investment and Development of Vietnam (BIDV) adjusted its interest rates twice between February 22 and March 2, and the rate on deposits of 13-18 months went up from 6.1 percent to 6.5 percent. For 24 to 36 months it went up from 6.3 percent to 6.8 percent.

Smaller banks like Eximbank, SeABank and OCB have already raised their rates on long-term deposits to 8 percent.

VietABank offers 8.38 percent on deposits of 100 million VND or more for 13 months and above.

By early March even the most conservative banks had joined the race to hike rates.

State-owned Vietcombank, which did not join the rush to hike rates last time, has increased interest rates now, but only on short-term deposits unlike the others.

Its rates for deposits of one to three months are up by 0.3-0.5 percent.

But, significantly, Vietcombank’s rates remain lower than the central bank’s cap of 5.5 percent.

Analysts attribute the hikes to factors like the need for long- and medium-term funds to grow credit this year.

Many experts had anticipated the issue and warned there would be demand for long- and medium-term funding after they saw the economy clearly recover and the Government sign a series of bilateral and multilateral trade agreements, which is likely to increase businesses’ demand for funds.

Another reason is that 80-90 percent of deposits now are short-term while demand for long- and medium-term loans is growing rapidly.

The State Bank of Vietnam (SBV)’s HCM City branch reported that last year the ratio between short-term and long- and medium-term loans was 44:56 percent. It is normally 50:50.

In this scenario, the SBV’s amendments to Circular 36/2014/TT-NHNN reducing the ratio of short-term deposits that can be used for medium- and long-term loans from the current 60 per cent to 40 percent has caused deposit interest rates to rise.

Besides, the risk weightage for loans to the real estate sector will be raised to 250 percent from the current 150 percent.

As a result, banks have been forced to hike interest rates on long-term deposits so that they have enough funds to provide long- and medium-term loans.

An SBV spokesman said that in recent months credit demand has shot up, especially before and after the New Year in early February, and the trend is likely to continue.

But it should not be too worrying since interest rates remain acceptable at 4.5-5.4 percent for deposits of up to six months, and 5.5-7 percent for longer terms.

However, the fact shows that the hikes have not benefited either depositors or borrowers.

Bao Viet Securities Joint Stock Company said the high interest rates apply only for deposits with long terms and large size (equivalent to billions of dong or more) while the overwhelming proportion of depositors park small amounts for short periods.

However, the deposit interest rate hikes are likely to cause an increase in lending interest rates, creating pressure on both corporate and retail borrowers.

Thanks to the restructuring of the banking system, lending rates have come down by half since late 2012 to 9-11 percent for ordinary loans and 6.5 percent for priority loans.

But deposit mobilisation has picked up with the interest rate hikes, creating the possibility of a surge in lending interest rates.

Interest rates on consumer loans have started to go up, meaning rates on other loans too may soon rise.

MOIT issues warning on virtual currencies

The industry and trade ministry’s E-commerce and Information Technology Agency (VECITA) has warned consumers and investors to be cautious while purchasing virtual currencies on e-commerce websites.

Specifically, some websites, forums and social networks provide information on virtual currencies such as Swisscoin, Bitcoin, Onecoin and Gem coin, besides IL coin with offers of huge profits.

However, the State Bank of Vietnam said on February 27, 2014 that Bitcoin and other virtual currencies were not legal currency and payment tools in Vietnam. The ownership, purchase and use of virtual currencies are risky and not protected by law.

In addition, VECITA said organisations and individuals should not do transactions relating to virtual currencies.

Over the last two years, several virtual currencies such as Bitcoins have been banned for transactions in some countries such as China, Russia and Thailand. Investors in Japan and Hong Kong have been attacked by hackers, causing losses to them.

In Vietnam, policy agencies received reports about fraud in online transactions, when investors who transferred cash to the accounts of sellers did not receive virtual currencies in return.

NTP reports profits up, merger formed

Tiền Phong Plastic Joint Stock Company (NTP) in 2015 witnessed a year-on-year increase of 22 per cent in revenue, 13 per cent profits, and a merger with another plastics company.

This has been announced in the NTP’s report issued to its shareholder general meeting, which will be held on March 26.

This year, the NTP has planned a revenue of VNĐ3.9 trillion (US$174.1 million), an increase of 10 per cent over 2015 and a profit of VNĐ415 billion, an increase of 7 per cent respectively.

The merger it announced last year was with Năm Sao Plastic Limited Company, which has a charter capital of VNĐ21 billion and manufactured plastic products for buildings in the northern city of Hải Phòng.

Under the schedule, NTP will compete a new factory specialising in producing plastic pipes of PEHD PPR in about 62,000 hectares of land of the former Năm Sao Company by next year.

Năm Sao Company will then be one of NTP’s subsidiaries.

ATS to begin trading on northern bourse

The Hà Nội Stock Exchange has approved the listing of 3.5 million shares of Atesco Industrial Catering JSC with code ATS at a starting price of VNĐ10,000 per share in March.

Based in Hàng Than Street, ATS works in the catering, restaurants, hotels and real estate services. It owns a conference centre in Văn Quán Area, a hotel in the old quarter, and works as the provider of food for the Đại An Industrial Zone in Hà Nội.

In late 2010, ATS also developed a luxury apartment and villa project in Dung Quất Economic Zone in the central province of Quảng Ngãi.

ATS reported a sale of over VNĐ57 billion last year.

VGG set to pay cash dividend in May

Việt Tiến Garment Corporation (VGG) will pay a dividend of 30 per cent in cash on May 20, the corporation announced yesterday.

With a total 28 million shares, the corporation will pay a dividend of VNĐ3,000 for each share, thus, it is expected to pay VNĐ84 billion in cash.

The entire 28 million shares of VGG, as a leader in the local textile and garment industry, started trading in the unofficial listed market on March 10 at a reference price of VNĐ40,000 each. In 2015, VGG registered more than VNĐ6.3 trillion in revenue and VNĐ242 billion in profit.

VGG will conclude a list of shareholders for the dividend before its first annual general meeting on March 25. After three trading days, each share is now valued VNĐ74,000 in the market.

EVN signs deal on Vĩnh Tân 4 expansion

Electricity of Việt Nam (EVN) and a contractor consortium have signed an engineering, procurement and construction (EPC) contract for the Vinh Tan 4 plant expansion.The consortium comprises Doosan Heavy Industries and Construction (Korea), Mitsubishi Corporation (Japan), Power Engineering Consulting Joint Stock Company 2 (PECC2, Việt Nam) and Pacific Corporation (PAC, Việt Nam). A source from EVN said yesterday the plant expansion project would start later this month and the plant would begin supplying about 3.6 billion kilowatt hour per year to the south-central region and the southern provinces by the end of 2019. The 600MW Vĩnh Tân 4 Thermal Power Plant Extension, located in Binh Thuận Province, uses supercritical coal-fired technology with an investment of US$1.1 billion. Jitaik Chung, vice-chairman and chief operating officer of Doosan Heavy Industries Group, said he would mobilise all available resources to implement the Vĩnh Tân 4 Thermal Power Extension project and ensure efficiency, safety and the best quality to ensure that the factory becomes operational on time. Last year, EVN and Doosan Việt Nam Heavy Industries (Doosan Vina) completed the installation of a heavy girder of the first boiler unit of the Vinh Tân 4 Thermal Power Plant for the first unit that becomes operational in 2017. Earlier this year, Doosan Vina shipped 354 tonnes of high-tech boiler components to the plant. The plant, the construction of which began in 2014, comprises two 600MW units, creating a total installed capacity of 1,200MW. The annual power output is expected to reach some 7.2 billion kWh.

Markets vital for Vietnam’s development: official

Intensifying the scale and health of the financial market should be one of the top priorities for Vietnam in its ongoing economic restructuring process, a finance official said.

Vu Viet Ngoan, Chairman of the National Financial Supervisory Commission (NFSC) told a seminar in Hanoi on March 14, as the commission launched a financial market overview report for 2015, that this market will especially play an important role in the country’s economic development between now and 2035.

The Ministry of Planning and Investment estimated that the domestic economy will need a total investment capital of around VND10 quadrillion (US$444.5 billion) for its growth over the next five years.

Ngoạn said that the current size of the local financial market is modest compared to global and regional ones, and it is yet to meet the demand of economic development, especially when Vietnam is integrating faster into the global economy.

Last year, financing channels including bank credits and share and bond issuances supplied a combined nearly VND800 trillion (US$35.6 billion), or some 19% of the country’s gross domestic product (GDP), for the domestic economy, according to the report.

“It is hard to manage adequate capital for the economy, and even harder to distribute capital resources effectively,” Ngoan said.

Vietnam currently pursues three fundamental economic goals, including stabilising the macro-economy, maintaining reasonable growth and speeding up economic reforms.

“This year and a few years ahead, if Vietnam does not accelerate reforms… creating a healthy financial market, renewing growth models and making big changes in labour productivity and economic competitiveness, it will be hard for the country to achieve three basic targets in its socio-economic development plans,” he said.

Ngoạn said Vietnam’s economic restructuring process, which has been underway for four years, has helped curb massive investments and stepped up progress of the business equitisation process.

This has contributed to the country’s economic achievements last year, when its GDP growth rate reached 6.67% and inflation was controlled at 0.63%, while the global economy continued to face significant headwinds.

However, officials said the national economy still faces many challenges.

NFSC Vice Chairman Truong Van Phuoc said that, while foreign direct investment enterprises are still a major force driving the country’s growth, a slow State-run enterprise rationalisation process remains an obstacle for the development of the domestic stock market, which is still witnessing decline.

Phuoc said the domestic credit institution system sees prospects this year, with the quality of lending significantly improving last year. Bad debts totalled nearly VNĐ120 trillion (US$5.3 billion), equivalent to 2.9% of the total outstanding loans in the system in 2015. This ratio was 3.7% in 2014.

However, he pointed out that the banking system sees potential risks related to liquidity, when medium to long-term loans grew over 55% while the capital mobilised for medium to long-term use rose by roughly 10% last year.

Ngoan said the sharply declining oil prices are hitting national budget revenues, and rapidly growing public debt is challenging policymakers who are making efforts to balance macro-economic conditions.

Tran Dinh Thien, director of the Vietnam Institute of Economics, under the Vietnam Academy of Social Sciences, said the economy looks worrying as official data revealed that State budget overspending reached around 5% of the country’s GDP, and public debt neared a security cap of 65% of GDP last year.

The Ministry of Finance reported the national budget overspending of VNĐ25.5 trillion (US$1.1 billion) in the first two months of this year alone, representing 10.6% of the annual quota. Budget revenue reached VND160 trillion while budget spending hit VND185.6 trillion in two months.

A government’s report said by 2015 Vietnam’s public debt stood at VND2.7 quadrillion (US$121 billion) against the figure of VND1.3 quadrillion (US$58.3 billion) in 2011. This means, on average, the public debt has increased by about 20% a year.

“What worries me the most is that our public debt is much bigger than our capacity to repay it. Our current revenue collection cannot cover our regular spending and pay back the debt,” Nguyen Quang Thai, vice chairman of the Vietnam Union of Economic Science, said.

“Just paying the debt alone would eat up more than 25% of our annual national budget collection. It is projected that in the two years 2019 and 2020 that figure will rise to 30%,” he told the Tuổi trẻ (Youth) newspaper recently.  

Vietnam weighs ceiling rate future

Vietnam’s monetary policies resemble China’s in many respects. Two prime examples are the control of capital flows and market interest rates, including the application of ceiling deposit interest rates.

Most recently, following China’s move to apply a market-based exchange rate mechanism starting in August 2015, Vietnam also started applying a central exchange rate mechanism beginning in January 2016, which is subject to both upward and downward daily changes.

In 2013, China removed the final interest-control regulations on its lending rate floor, thereby fully liberalizing lending rates. In October 2015, China scrapped regulations on the deposit interest rate ceiling, which had previously been limited to 1.5 times the one-year benchmark rate.

In Vietnam, regulations on deposit interest rate ceilings are still being applied. Specifically, according to current regulations, the maximum interest rate applicable to deposits in VND are as follows: 1% per annum for demand deposits and term deposits of less than one month, and 5.5% per annum for deposits with maturities over one month but under six months (6% per annum for individual credit funds and microfinance organizations).

The maximum interest rate for deposits in USD of both economic entities (except for credit institutions and branches of foreign banks) and individuals is zero. With over 80% of deposits from individuals and economic entities having maturities of less than one year, the deposit interest rate ceiling, although applicable only to maturities of less than six months, still has a major impact on the deposit market.

In 2015, in the context of low inflation, the prevailing deposit interest rates for fewer than six months were commonly below the ceilings. However, since the beginning of 2016, many banks have boosted capital mobilization through the implementation of promotional programmes.

The benefits actually received by depositors may have exceeded the deposit interest rate ceiling.

So should Vietnam follow China and abandon the deposit rate ceilings?

China abandoned its deposit rate ceiling because doing so creates many benefits for the country. Firstly, investment and exports-China’s two main growth engines-have levelled off in recent years, requiring the country to switch to a new growth model based on the promotion of domestic household consumption, which has previously accounted for a low proportion of GDP.

To achieve this, there need to be measures to redistribute income and increase household income, including income from bank deposits.

The ceiling deposit rate in China had previously often been equal to or less than inflation, resulting in the real interest that depositors received being very low or even negative, and reducing household income.

Meanwhile, borrowers received low interest rates, and banks could enjoy higher margins. The removal of the ceiling deposit rate transferred income from businesses to households.

Secondly, the ceiling deposit rate helped borrowers get loans with lower interest rates, thus promoting active use of debt and rampant use of capital. Investments increased excessively, while the debt-to-GDP ratio soared to 232% in 2014.

As the banking system in China often gave priority to state enterprise borrowing, the majority of the benefits of lower interest rates were passed to state enterprises, many of which operate inefficiently. This increased the risk of poor asset quality in the banking system.

Thirdly, the control of interest rates is necessarily accompanied by restrictions on capital outflows which might otherwise seek higher yields. With the development of trade, tourism, and migration, the control of interest rates is increasingly ineffective.

For example, certain mechanisms exist that can move capital abroad, such as over-invoicing imports, under-invoicing exports, or cash withdrawals from credit cards for spending abroad.

These measures are being used more widely, making the control of interest rates and the control of capital outflows more inefficient.

Although the liberalization of interest rates will bring long-term benefits for the economy, it would also cause downward pressure on growth and increase the volatility of the financial markets in the short term.

An imminent challenge for the government is to strike a balance between making progress on reforms and the maintenance of stable economic and employment growth.

Retail sector to lead M&A wave in Vietnam

The consumer goods retail sector and related industries will lead the next merger and acquisition (M&A) wave in Vietnam, following recent developments involving Thai companies.

The areas related to the retail sector will attract the most M&A activity, said speakers while addressing a recent retailers’ business forum sponsored by the Vietnam Retail Association in Hanoi.

Already, a spate of large Thai retailers and consumer goods companies have been flocking to Vietnam, they said.

Most notable is the recent announcement by French supermarket operator Groupe Casino that it will now likely sell its Vietnam and Thailand operations.

In a prepared statement, Groupe Casino said it is proceeding with a sale “in the best interests of the company and its shareholders” of both its Big C Vietnam and Thailand businesses.

It is not clear if a sale is contingent upon both businesses being bought by the same buyer, but that certainly appears to be more than likely the case, said speakers at the business forum.

Groupe Casino holds a 58.6% stake in the total paid-up capital of both Big C Vietnam and Thailand, with the balance controlled by the original founder, Central Group, also based out of Thailand.

There had originally been rumours the Central Group was planning to reacquire control of Groupe Casino’s Big C stores in Vietnam, said the speakers.

However, that doesn’t appear to be the case, as a Vietnamese representative of the Thai conglomerate reportedly has said nothing has happened from its side. “They [Big C] are approaching retailers in the market to make the selling offer.”

“That is a normal process.”

A source close to Central Group’s activities in Vietnam said a deal between the Thai retailer and electronics appliance chain Pico had failed, prompting speculation that a Central Group takeover was on the cards.

Earlier last year it had acquired 49% of Nguyen Kim, a major electronics retailer in Vietnam.

Meanwhile, Berli Jucker is also eyeing Big C Vietnam after the billionaire Charoen Sirivadhanabhakdi-backed, listed company dropped its bid for Metro Cash & Carry in Vietnam.

On January 7, the German group announced it had sold the Vietnam-based wholesale unit to TCC Holding, another business of Sirivadhanabhakdi, for US$711 million (655 million euro).

Meanwhile, Singapore's Dairy Farm Group, the Republic of Korea (RoK)'s Lotte Group and Japanese retail group Aeon Co Ltd have also expressed interest in acquiring Groupe Casino’s stake in Big C Vietnam and Thailand.

Trying times for local firms after TPP

Besides its numerous benefits, the Trans-Pacific Partnership will bring a slew of challenges to the Vietnamese textile, apparel and footwear sectors.

Signed on February 4 in New Zealand, the historic Trans-Pacific Partnership (TPP) aims to boost trade between its 12 member countries by lowering tariffs. As the world’s major exporter of textiles, garments and footwear, Vietnam is expected to benefit greatly from the trade deal.

For example, the average taxes on textile products exported from Vietnam to the US, a TPP member and the largest importer of made-in-Vietnam garments, will gradually decrease to zero from the current level of 17%.

Overall export turnover is forecast to reach US$55 billion in 2020, and the Vietnamese textile and garment industry will expectedly grow by 25% a year after the TPP takes effect.

It is thus understandable that the Vietnamese textile, apparel and footwear industries have greeted the trade deal with feverish enthusiasm. However, it should be noted that aside from these opportunities, the TPP also presents Vietnamese firms with numerous challenges.

Specifically, the “yarn forward” rule from the TPP states that Vietnamese exporters must use fabrics and textiles either from local sources or other TPP members if they wish to benefit from lowered taxes. This has proved to be challenging for Vietnamese textile and footwear firms, that now import the majority of their materials from China, a non-TPP member.

Researchers from Bao Viet Securities said in a recent report on TPP that 70-80% of textile and footwear materials in Vietnam were currently imported from non-TPP countries, with imports from China accounting for 42%.

Meanwhile, the domestic fabrics and textile industry remained underdeveloped, and mired by a lack of diversity and low product quality. “Thus it’s likely that most Vietnamese textile firms will not benefit from the TPP’s lowered tariffs unless they invest in raw materials supply.”

Additionally, supporting industries for the textile and footwear sectors often require great capital and high standards of anti-pollution measures, which can be challenging for Vietnamese firms. In a recent press interview, Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association, noted that textile and dyeing were major causes for water pollution due to their high levels of sewage.

“As a result, the development of these supporting industries in Vietnam for the TPP must go hand-in-hand with protecting the environment,” Giang said.

Furthermore, various investors from non-TPP markets, such as China, the Republic of Korea (RoK), and Taiwan (China), have recently built weaving and dyeing factories in Vietnam to comply with the “yarn forward” rule of the TPP.

There are concerns that this may discourage the development of the domestic supporting industries. Foreign textile firms may receive all TPP tax reductions instead of Vietnamese companies.

“It remains unclear to know whether the TPP will benefit Vietnamese or foreign firms more, especially as overseas investors have already rushed to build their own fabric factories in Vietnam while the domestic supporting industries are still struggling,” noted a Vietcombank Securities forecast report 2016.

Experts suggest that Vietnam should focus on solving these problems during the upcoming two-year ratification period, when the TPP gets approval from the member countries’ legislative bodies before taking effect.

Work underway at new Vinatex textile mill

The Vietnam National Textile and Garment Group (Vinatex) began construction of the An Bien textile mill in the Mekong Delta’s Kien Giang province on March 14.

The mill has estimated investment capital of VND210 billion ($9.42 million), with 70 per cent being in commercial loans.

It will cover 3.7 ha and employ some 1,500 workers, turning out 12 million products annually for export and domestic consumption.

Once operational, in the first quarter of 2017, the mill will bring in revenues of about VND850 billion ($38.13 million) annually and contribute some VND5 billion ($224,300) to the State budget. Average salaries are expected to be between VND4 million ($180) and VND5 million ($225).

The An Bien textile mill is one of 300 mills Vinatex plans to build in the south of Vietnam from 2015 to 2017.

Mr. Pham Phu Cuong, Vinatex Deputy General Director, said the mill’s construction aims to utilize the opportunities that will come from the TPP.

VIB Hai Phong relocates

VIB Hai Phong officially relocated on March 11 and take on a new look and feel, at 9 Tran Hung Dao Street, Hai Phong.

From March 11 to 31 customers who bank with VIB Hai Phong will not be subject to fees when opening a current account, when using VIB Values, VIB Debit MasterCard, and VIB Credit MasterCard, or when accessing payment guarantees and many other services related to funds and cash.

After more than 12 years in Hai Phong VIB has become one of the leading commercial joint stock banks in the city, with more than 20,000 local customers. By relocating VIB Hai Phong, VIB demonstrates its strong development and commitment to best meeting the financial plans of personal, corporate and institutional customers in the area.

This is also part of the bank’s roadmap to operate a new sales and service model by putting customers at the center, which has been continually implemented since 2009.

The new sales and service model applied at VIB branches is a positive change not only in the branches’ look and feel or how they communicate their message but also in their staff’s daily thinking and attitude, which will help create more value for customers. All staff at VIB branches have been trained to fully meet new requirements in customer service quality, while 98 per cent of all VIB branches are now operating under the bank’s new sales and service model.

On this occasion VIB also signed comprehensive cooperation agreements with the Doan Xa Port JSC and the Tien Phong Plastics JSC. VIB pledges to provide optimal financial solutions to facilitate the two companies’ operations and business. The bank also provides various preferential services and products to the companies’ employees to best meet their essential needs.

VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VET/VIR

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