Economy awash in money

The National Financial Supervisory Committee has said that in the year-to-date the financial system has ensured that money supply is adequate thanks to the banking sector’s plentiful liquidity.

The total amount of broad money was VNĐ7,489,000 billion (US$332.844 billion), a 12.5 per cent increase from the end of 2015.

Money accounted for 74.9 per cent, up 9.1 per cent, with the remaining 25.1 per cent made of stocks and bonds, up 24.3 per cent.

M2 is a measure of the money supply that includes all elements of M1 as well as "near money." M1 includes cash and checking deposits, while near money refers to savings deposits, money market securities, mutual funds and other time deposits.

What has caused this plentiful money supply?

This year bank lending has grown at 9.2 per cent, or similar to the rate in the same period last year. There are no signs it will rise in the rest of the year.

Deposits rose 9.94 per cent.

Liquidity in the interbank market has also been plentiful as indicated by the fact that the inter-bank interest rates have been cut by 0.3-0.5 percentage points to the lowest levels ever recorded. Besides, the central bank has bought more than US$10 billion worth of foreign exchange in the market, increasing the country’s reserves to nearly $40 billion.

The plentiful liquidity has enabled the Treasury to issue government bonds and banks to issue enterprise bonds.

The Treasury successfully organised five government bond issuances worth VNĐ32.41 trillion (over $144.044 million).

BIDV issued VNĐ2.7 trillion worth enterprise bonds with a 10- year tenor and a coupon rate of 7.5 per cent fixed for the first five years.

Vietcombank plans to issue enterprise bonds worth VNĐ8 trillion, while the Khang Điền Housing Trading and Investment Company expects to issue enterprise bonds worth VNĐ 570 billion.

SBV deputy governor Nguyễn Thị Hồng said creating liquidity to support the Government’s issuance of bonds was an important task for agencies in charge of regulating monetary policies.

"Creating plentiful liquidity is also aimed at helping reduce lending interest rates," she said.

Analysts say, however, that to reduce the lending interest rates primary market interest rates must be lowered. This means that bad debts must be settled, but the fact is bad debts have tended to rise in recent months.

It is this financial pressure created by the increasing bad debts that will make it hard to bring interest rates down immediately.

The low quality of many borrowers is also another reason that keeps the interest rates at a high level because of the high level of risk involved.

VN seeks to sell stakes in firms to foreign investors

According to the Ministry of Planning and Investment’s Foreign Investment Department, in the period from July 2015 to July 2016 foreign investors injected a total of US$2.9 billion into 3,141 Vietnamese enterprises by buying stakes.

In July alone companies from 65 countries and territories invested in Việt Nam.

Singapore led the list with US$488.4 million in 107 projects followed by Japan and South Korea.

Enterprises that attracted the most investments were unlisted public companies involved in sectors such as real estate, retail and wholesale, air transport and plastics.

MoPI insiders say the trend of foreign investments in unlisted Vietnamese companies became popular in the last one year or so.

But analysts say foreign investment in general remains much lower than demand since Việt Nam still has many areas in which foreign investors can invest.

They attribute the moderate investment to limitations in many policies, one of which is Decree No.60/2015 providing guidance for implementing the Securities Law.

Some of the decree’s regulations related to foreign ownership ratio in Vietnamese companies pose hurdles for foreign investors.

To improve the situation, Việt Nam needs more efforts to perfect policies and then enforce them scrupulously.

In addition, incentives offered to foreign investors should be more attractive than in neighbouring countries and competitors.

The list of sectors and industries that are open to foreign investment should be specified clearly, thus creating more favourable conditions for foreign investors to invest in areas they find suitable.

The State Security Commission plans certain measures to attract more foreign investment in the stock exchange.

In particular, it will continue to strive to upgrade its status from “frontier” to ‘Emerging” to encourage foreign organisations to earmark a greater share of their investment to the Vietnamese market.

It plans to change regulations on foreign ownership ratios at listed and unlisted firms in ways that will encourage foreign investors.

Decree No.86/2016 for the first time allows foreign securities companies to set up branches in Việt Nam.

This policy has ushered in a new way to attract portfolio investment.

The book building method proposed by the Ministry of Finance is also expected to attract foreign investment in major State-owned companies eligible for equitisation.

Book building is a process of generating and recording investor demand for shares during an initial public offering (IPO) that supports efficient price discovery.

Book building enables an underwriter to precisely determine at what price to make IPO based on actual demand.

Banks happy to offer mortgages

By late August the banking sector’s credit growth had risen significantly, reaching nearly 9 per cent for the year, according to the State Bank of Việt Nam (SBV)’s credit department.

Market observers attributed the strong credit growth to certain factors, one of which was that banks have set aside considerable amounts for mortgages.

The SBV’s HCM City branch revealed that credit pumped into the real estate market accounted for 13 per cent out of total outstanding loans.

Significantly, mortgages accounted for 39 per cent, equivalent to VNĐ68 trillion and marking a year-on-year increase of 10 per cent. This did not include loans from the SBV’s VNĐ30 trillion housing support package which has been extended.

The total amount disbursed from this package is VNĐ1.26 trillion, accounting for 83 per cent of the total VNĐ6.47 trillion that the banks committed to lend.

To reduce risks, the banks focused on mortgages instead of lending to developers as they used to.

To ensure effective lending to home buyers, the banks have established close ties with developers through which they provide support to the latter’s customers.

HDBank for instance offers loans at zero interest for the first six months to people buying apartment in the Mon City Project.

OCB has signed a guarantee agreement for the Nam Long Group’s Flora Fuji project.

Buyers will receive guarantees from OCB and zero interest housing loans for the first year.

As a result, OCB’s mortgage increased by 69 per cent year-on- year.

An ACB executive said home loans account for 50 per cent of the bank’s total outstanding loans to individual customers.

The lender plans to increase its retail banking target by 35 per cent this year by tying up with housing developers to lend to buyers.

But analysts are warning the lenders to carefully monitor credit quality to reduce risks and avoid bad debts.

For its part, the State Bank of Việt Nam is encouraging credit institutions to increase lending but suggesting they should focus on priority sectors and production and trading activities.

The central bank has also warned them to limit loans in “high risk” areas including real estate.