Viet Nam Banks More Cautious, HSBC Country Head Says

Friday, May 23, 2008
Vietnamese banks are becoming more cautious in lending to industries such as real estate as rising interest rates increase the risk of defaults, said the head of HSBC Holdings Plc's operations in the country.

``With interest rates going up, liquidity being tight, it's only prudent to constrain lending to those with fundamental projects rather than to speculative purposes such as property development,'' Thomas Tobin, HSBC's chief executive officer in Viet Nam, said in a phone interview yesterday.

The benchmark stock index has fallen for 15 straight sessions, tumbling 18% since April 29, as concern mounted that soaring interest rates will cripple Viet Nam's economic expansion. Banks are forced to extend loans at rates as high as 22% to make a ``meaningful profit,'' fund manager Vinacapital Investment Management Ltd. said last week.

Viet Nam's credit growth reached 50% last year as banks extended loans to retail investors for buying securities while a real estate boom fueled demand for mortgages. The credit expansion, coupled with rising commodity and energy prices, pushed inflation in the Southeast Asian nation to the highest in at least 15 years.

Prime Minister Nguyen Tan Dung this week told the nation's central bank to focus interest-rate policy on fighting inflation, suggesting the government is more concerned about rising prices than economic growth. The central bank on May 19 boosted its base rate to 12% from 8.75%, and commercial banks raised borrowing costs the same day.

Viet Nam's Economy

HSBC, the world's third-largest bank by market value, owns 15% of Viet Nam Technological and Commercial Joint Stock Bank. The London-based bank in December 2005 agreed to pay $17.3 million for a 10% stake. It has agreed to raise the holding to 20 percent, pending government approval.

As loans dry up, the Ho Chi Minh City Stock Exchange's VN Index has tumbled 53% this year, making it Asia's worst performer. Residential prices in Ho Chi Minh City have dropped as much as 40 percent since the end of last year, according to Morgan Stanley.

Viet Nam's economy expanded 7.4% in the first quarter from a year earlier. Last year, gross domestic product grew 8.5%, the fastest pace since 1996.

`Good Story'

Viet Nam's ``strong growth potential'' hasn't been diminished by its current difficulties, Helen Qiao, an economist at Goldman Sachs Group Inc. in Hong Kong, said in a Bloomberg Television interview on May 21.

``Things are tougher than they were before, but Viet Nam really has a good story in the medium and long term,'' said Tobin, citing the nation's infrastructure and a young and skilled workforce.

Asia Commercial Bank has slumped 66 percent this year in Hanoi trading. Saigon Thuong Tin Commercial Joint-Stock Bank has fallen 60 percent in Ho Chi Minh. The two are the only listed Vietnamese banks.

HSBC isn't planning to take advantage of falling valuations to make acquisitions in Viet Nam, said Tobin.

``There probably are opportunities if you look at the prices,'' he said. ``We aren't really looking around.'' (Bloomberg)