Bank lending rates expected to fall in the new year

Monday, Jan 06, 2020 07:42

Low inflation, steady foreign exchange rates and tools available to the State Bank of Viet Nam (SBV) to monitor money flows are among the factors that will enable credit institutions to cut the interest rates. — Photo

A report by securities firm SSI on the financial and monetary market says deposit interest rates are likely to be cut by 0.5- 1 percentage point this year, and lending interest rates would also be cut by at least 0.5 percentage points as required by the Government.

Low inflation, steady foreign exchange rates and tools available to the State Bank of Viet Nam (SBV) to monitor money flows are among the factors that will enable credit institutions to cut the interest rates.

Hoang Minh Hoan, deputy director of the Sai Gon Commercial Joint Stock Bank, said the current exchange rate stability, record high foreign exchange reserves, solid economic growth, and faster credit growth than deposit growth are likely to drive the cuts.

The liquidity available in the banking sector and lower refinancing and discount rates are also factors, according to Hoan.

Generally speaking, most current macroeconomic factors support the stability of interest rates, which allows lenders to reduce them after the Lunar New Year.

Ngo Dang Khoa, country head of global markets at HSBC Vietnam, agreed with Hoan, saying that the dong remained one of the most stable currencies in the region despite the global political instability and economic events at home.

He said its value against the US dollar remained virtually unchanged through 2019, sometimes even appreciating as the central bank actively intervened.

This and the FDI flowing into Viet Nam enabled it to buy huge amounts of dollars, thus increasing the country’s foreign exchange reserves to a record US$73 billion on October 30.

Through the course of the year it bought $16 billion worth of dollars.

Besides, the trade surplus in the first 11 months of the year was a record $9.1 billion.

The World Bank estimated overseas remittances to Viet Nam in 2019 to reach $16.7 billion, up 4.6 per cent from the previous year.

Credit growth for the year was only 12.1 per cent while deposit growth was 12.5 per cent.

All this had left a lot of liquidity sloshing around in the market.

Meanwhile, inflation remained at around 2.6 per cent as of November, down from 3.5 per cent in 2018 and much lower than the target of 4 per cent set for 2019.

Besides all this, the central bank has a few extra tools now to streamline money flows.

With effect from November 1, for instance, the money raised by issuing bonds now has to be kept in a Treasury account with the State Bank of Viet Nam instead of depositing at State-owned banks like BIDV and Vietcombank.

Tax revenues, hitherto kept in the Treasury’s collection/payment accounts with banks, are now kept in the Treasury Single Account (TSA) at the SBV. The TSA is the account into which all revenues of all government agencies go.

This means the central bank sits on a pile of cash it can readily inject into the market to bring down interest rates as it sees fit.

Many analysts have thus suggested that bank lending interest rates could be cut by 0.75-1 percentage point in the new year.

Livestock industry share prices hit by epidemic

African swine fever is taking a toll not only on pigs but also the share prices of livestock companies.

Vissan Joint Stock Company (VSN) has seen its price fall by 20 per cent since October to VND30,500 on December 25. But thankfully for investors, it has not been accompanied by large volumes

Despite being the only company that sells chilled meat products, Masan’s share price has also dropped from VND70,000 to VND65,000.

Dabaco Vietnam (DBC) fell from VND26,000 to around VND23,000 before recovering slightly.

Vissan general director Nguyen Ngoc An explained saying his company is suffering severe losses because the price of pork on the hoof has doubled since early this year to VND90,000 per kilogramme.

More than 90 per cent of pigs are supplied by farms in Viet Nam but the company had kept its meat prices unchanged at VND64,000 since November 13 under the Government’s price stabilisation programme, he explained.

But the soaring pig prices have resulted in pork prices skyrocketing to VND110,000-130,000 ($5-6) per kilogramme at markets in Ha Noi and HCMC, depending on the cuts.

Young pork ribs have even shot up to VND150,000-160,000.

There are no signs of prices coming down yet.

An said his company had asked the HCM City Departments of Industry and Trade and Finance to adjust pork prices under the price stabilisation programme to ensure companies in the industry do not go bust.

Dabaco runs a large pig farm in the north, which raises around 750,000 animals a year.

Meanwhile, costs for raising those pigs now account for 49 per cent of the company’s total turnover.

Because of this, the sharp increase in hog prices has heavily affected the company’s profits.

In the first nine months of the year Dabaco’s after-tax profit fell by 80 per cent year-on-year to VND47 billion.

Such bad business results have made livestock companies’ shares less attractive to investors, experts said.

Solar power licensing under reconsideration

The Ministry of Industry and Trade’s Notice No.402 dated November 22 calls on cities and provinces and the Viet Nam Electricity Group (EVN) to stop proposing solar power projects under the feed-in tariff (FIT) programme until a new decision is issued.

The ministry said only projects which had signed power purchase agreements and were under construction for operation in 2020 could apply for FITs. The rest would be licensed through bids to enable the reduction of power purchase prices, it said.

The Global Infrastructure Facility (GIF) and the World Bank’s Energy Global Practice will help the Government design and structure a pilot solar auction programme and switch from the current feed-in tariff regime to a sustainable competitive auction scheme for solar power generation, according to a source from Saigon Times Weekly.

The GIF has pledged to provide US$1.5 million for the programme, which is expected to help the country address the increased demand for energy.

Viet Nam is actively seeking to attract private investment and use more public-private partnerships in the energy sector, but needs to adapt its current framework to enable competitive selection of independent power producers and minimise the cost of solar generation.

The Solar Competitive Bidding Programme by the Ministry of Industry and Trade is part of the Government’s efforts to accelerate investments in energy efficiency and renewable energy to increase diversification of energy sources and reduce carbon dioxide (CO2) emissions.

The country hopes to add 12GW of solar energy to the grid by 2030.

After the Government offered incentives for solar power in 2017, 135 projects with a combined capacity of 9,935 megawatts (MW) were added to the national power scheme.

Solar farms with a total capacity of around 4,500MW have been connected to the grid to date.—VNS

Comments (0)