The industry hopes to increase total payments by 16-18 per cent and achieve credit growth of 13-15 per cent. — Photo cafef.vn

At a conference held in late December the banking sector announced its main tasks for 2015. But the goals, based on the industry's results in 2014 and not set too high, may yet be difficult to achieve.

The industry hopes to increase total payments by 16-18 per cent and achieve credit growth of 13-15 per cent.

The central bank will persist with its stable foreign exchange policy and ensure the dong does not move by more than 2 per cent against the US dollar.

The value of non-performing loans will be reduced and kept at 3 per cent.

Several other important tasks like bank restructuring and resolution of cross-ownership and bad debts were also discussed at the event.

Attendees expected both the global and Vietnamese economies to remain volatile, thus bringing both opportunities and challenges.

They did not see major economies like Europe and Japan recovering significantly, and expected the US to increase interest rates to curb inflation and the price of crude oil to further fall.

Viet Nam has signed a slew of agreements to open up its market though its businesses remain uncompetitive.

Analysts and even bank executives said bad debts and cross-ownership are the banking sector's biggest problems, and so a lot of work needs to be done to fix them.

Resolving bad debts requires close co-operation between the Government agencies, local authorities, and businesses.

For instance, the Government needs to have a legal framework to enable banks to easily dispose of loan collateral when borrowers cannot repay their loans.

The banks also need the support of the courts to get companies to repay overdue debts.

Speaking about the foreign exchange policy, experts said the US Federal Reserve (FED) would increase the interest rate, pushing up the value of the greenback.

This would significantly affect all companies around the world borrowing foreign currency including in Viet Nam. So the central bank has to be very careful and flexible in outlining and executing its monetary policies to ensure the stability of the economy.

The country's interest rates are rather low in line with the demand made by most companies, but it is very difficult to maintain them at these levels since the demand for funds may rise and banks have to be mindful of stoking inflation.

To keep the depreciation of the dong against the dollar at below 2 per cent will not be very easy because there are many factors that impact the exchange rate. They include exports, which are estimated to increase by 10 per cent this year, and the trade deficit, estimated at 5 per cent.

The banking sector has been warned to make concerted efforts if it wants to achieve the targets set for the year.

Securities firms seek more funds

The State Bank of Viet Nam recently issued Circular 36/2014/TT-NHNN on capital adequacy and liquidity requirements for banks.

It restricts cash flows from banks into the stock market. Only those lenders who fulfill capital adequacy norms and have a bad debt ratio of 3 per cent or less will be allowed to provide credit in the form of loans and discount of valuable papers for customers to invest in stocks.

In any case, loans to invest in stocks cannot exceed 5 per cent of banks' outstanding credit. Though the circular only takes effect on February 1, it is already having a considerable effect on the stock market.

Analysts said that the stricter lending regulations would have a substantial impacts on the stock market in the short term. Securities companies that rely entirely on bank loans to finance margin trading will have to make margin calls if the funding banks have more than 5 per cent of their outstanding loans in securities investments.

To cope, securities companies are making great efforts to find new funding sources.

For many securities companies the option of choice is to raise funds by issuing bonds, and this is expected to strongly develop.

Market observers said however that bonds would only be effective when issuers prove to have prestige and stable cash flows.

In November the Vietcombank Securities Company successfully issued VND200 billion (over US$9.41 million) worth of bonds. becoming the first to go down the bond route.

This year the company plans to issue more bonds worth VND500 billion ($23.5 million).

Securities companies belonging to several other banks have also made plans to mobilise funds to meet customers' financial needs and launch new products.

The Phuong Nam Commercial Joint Stock Bank Securities Company (PNS) revealed that it would have to raise funds in the first half of the year but has not yet decided on the mode.

The Techcombank Securities Company plans to raise its VND700 billion($32.94 million) and Military Bank Securities VND600 billion ($28.24 million) from bonds.

Other securities companies too have plans to raise funds.

Tri Viet, for instance, is preparing to issue bonds worth VND30 billion ($1.41 million) for 18 months with a coupon rate of 10.5 per cent.

Despite being among the securities companies with the highest charter capital in the market, SSI plans to make use of its advantages to issue bonds worth VND1-1.5 trillion ($47million-$70 million).

Analysts, while appreciating the necessity for securities companies, particularly small ones, to raise funds, warned about the risks involved. One of the main risks is that they would have to offer much higher interest rates on the bonds than bank deposit rates, which would push their costs up steeply.

Clarity eludes foreign investors

In 2014 property was one of the two sectors to attract the most direct foreign investment.

According to the Foreign Investment Department, in the first 11 months of the year, foreign investors injected a total of US$1.27 billion in the property market, or 7.3 per cent of total FDI.

The construction industry attracted another $1.02 billion from foreign investors.

But market observers are worried about how much of the money will actually be invested after witnessing many foreign projects stall over the years.

The Ministry of Planning and Investment's Bat Dong San (Real Estate) magazine reports that several years after being licensed many foreign property projects remain on paper. They include Booyoung Vina and Daewoo Cleve in Ha Noi, New City in Phu Yen Province and Winvest LLC in Ba Ria-Vung Tau Province.

Besides, many other FDI projects have made adjustments to both the capital and features.

For instance, in the third quarter of 2014, though the real estate market showed signs of recovery, the New City Properties Development Company, the foreign developer of a large proposed tourism complex, decided to reduce the size of the project from 565 hectares to 357.52 hectares and investment from $4.3 billion to $1 billion.

In December Hibrand Viet Nam Company also asked to reduce the number of floors in its buildings from 30-40 to 23-27.

Explaining the phenomenon, industry insiders said foreign investors continue to invest in the Vietnamese property market since they still see good prospects.

But not many of them have deep enough pockets to be able to wait until the market recovers fully and so have to reduce the size of their investments. — VNS