Fiachra Mac Cana, an analyst at HCM City Securities Company, said that credit has stopped growing. The State Bank of Vietnam has obtained its goal by

Friday, May 16, 2008
Fiachra Mac Cana, an analyst at HCM City Securities Company, said that credit has stopped growing. The State Bank of Vietnam has obtained its goal by hindering commercial banks from accessing capital sources, setting the ceiling deposit interest rate and withdrawing cash from the interbank market (by selling US dollars).

Capital getting stuck in domino effect

PetroVietnam, the biggest shareholder of Phu My Fertiliser Company, has proposed the government raise the export tax on fertiliser from 0% to 40% in May 2008 in order to prevent enterprises from selling fertiliser abroad as domestic farmers need fertiliser for rice fields.

Domestic fertiliser producers, like Binh Dien, now do not allow its sales agents to make deferred payment for products, while the agents do not allow farmers to make deferred payments.

As for steel, one big group has re-exported the ingot steel it imported at low prices late last year at $880/tonne, while the ingot steel price has soared to over $900/tonne.

As banks are tightening credit, businesses dare not stock up on materials. As businesses are lacking working capital, they have to sell materials they purchased before in order to get money.

“There are problems with the movement mechanism of the national economy, especially in goods circulation. We have lent VND800bil to rice exporters to help them collect paddies from farmers, but they still have not exported products, which means the capital turnover has gotten stuck,” said Tran Phuong Binh, General Director of East Asia Bank.

The capital turnover is getting stuck also because of non-performing loans. Borrowers do not pay bank debts. They pay fines for late debt payments for fear that they will not be able to continue borrowing money after they pay debts.

Nguyen Duc Kien, the founding member of ACB bank, said that clients are queuing to borrow money, but the bank cannot lend to them as the credit growth rate must be kept at 30%.

A steel mill said that it had to re-export steel for cheaper than the world’s price because it couldn’t sell to domestic buyers. Why? Because banks refuse to give loans to help buyers buy steel.

Worrying signs

While capital turnover problems exist, the State Bank of Vietnam on April 29 amended the regulations on valuable paper discount and re-discount limits. Under the new regulations, the discount limits will be defined quarterly. Commercial banks will have to report to the central bank about the discount limit prior to the first 15th of every quarter.

The enactment of new regulations means that the central bank will more strictly control the pumping of money into circulation through the discount loan channel. This also shows that the central bank still does not know how much money to put into circulation in order to ensure liquidity and fight inflation at the same time.

The situation in the interbank market has not improved. Overnight interest rates have decreased, but inconsiderably.

Meanwhile, government bonds are depreciating as foreign investors are selling bonds at VND93,100/share, while the face value is VND100,000.

Most recently, the interest rates of corporate bonds reached the peak of 16% per annum (16% for the first year, while the interest rates of the next years will be calculated from the average interest rates of four state owned banks plus 4%).

As such, though credit has stopped growing, interest rates will still not decrease, at least in May. (TBKTVN)