Central bank holds firm on plans to control credit growth and asks lenders to avoid risky sectors

Monday, Aug 27, 2018 10:29

On August 2, the State Bank of Viet Nam issued a directive requiring credit institutions to fully comply with all set objectives and orientations and control their credit growth. — Photo baodautu.vn

On August 2, the State Bank of Viet Nam issued a directive requiring credit institutions to fully comply with all set objectives and orientations and control their credit growth.

It says the central bank will not countenance any increase to their credit growth targets and they have to focus on lending to priority sectors like manufacturing and other businesses.

It requires them to control lending to potentially risky sectors like real estate and securities and to transport-related projects.

The central bank began the credit quota system in 2012, when many banks increased their lending by up to 50 per cent, causing a surge in non-performing loans.

Every year it sets credit growth limits for each bank depending on its health at the beginning of the year to regulate overall credit growth while also supporting government targets.

This year credit growth limits of 12, 14 and 16 per cent have been allocated to domestic credit institutions, with just a handful getting the 16 per cent cap.

The central bank’s decision to refuse increases to the credit growth limits has poured cold water on lenders, especially those that have already used up most of their quotas.

Tien Phong Bank Commercial Joint Stock Bank (TPBank), for instance, has been allotted a 15 per cent quota, but it used up 14.5 per cent in the first half of the year.

Banks that are close to using up their credit limits therefore have only one choice: reduce their business targets including profits.

LienVietPostBank, which has already used its credit quotas, has decided to slash its pre-tax profit target by 33 per cent to VND1.2 trillion (US$52.9 million).

Its minimum dividend rate has been reduced from 12 per cent to 10 per cent and its total asset target has been adjusted downward by VND10 trillion.

TPBank’s outstanding loans grew by 14 per cent in the first half, bringing VND1 trillion in profits.

But its full-year target of VND2.2 trillion now seems a long way away following the central bank’s decision.

A TPBank spokesperson said his bank was discussing ways to achieve the year’s targets.

Analysts had said earlier that lenders should focus on short-term loans, allocating lending quotas for enterprises and reducing long-term loans.

They said increasing credit caps would have fallout like an increase in the threat of bad debts especially when lending to risky sectors such as real estate and securities.

They also pointed out inflation is showing clear signs of rising and settlement of bad debts is happening at a slow pace.

State-owned firms delay divestment

The Vietnam National Petroleum Group (Petrolimex) recently sought permission to extend its deadline for divesting the Government’s stakes in it to 2019-20 instead of this year as planned.

According to Petrolimex, it made the proposal after observing several unsuccessful divestment efforts this year in which either a portion of the shares was unsold or auctions were postponed due to few investors registering to take part.

The initial public offerings (IPOs) of the Vietnam Rubber Group and Power Generation 3 Corporation (Genco 3) were among the unsuccessful deals. Those that did not go ahead at all included the Vietnam Television Cable Corporation (VTVCab) and the Ministry of Construction’s Viglacera.

The failure of these deals has made the State Capital Investment Corporation (SCIC), the sovereign fund which represents the Government in State-owned enterprises, delay other IPOs planned for this year such as those of Tien Phong Plastic JSC and Domesco Medical Import-Export JSC.

But experts are divided on this issue.

Some blamed the failure to divest on the gloomy market, which has affected not only State-owned firms but also many private enterprises.

They pointed to the example of Nam Long Investment Corporation (NLG), which has also postponed its plan to auction 40 million shares, or a 21.2 per cent stake from the third quarter of this year to next year.

Other analysts disagreed with this opinion saying the market has its reasons for buying or not buying certain stocks based on quality, size and other factors.

They cited the case of Viet Nam Glass and Ceramics for Construction Corporation (Viglacera-VGC), saying the starting price of VGC shares offered by the construction ministry of VND26,100 was not acceptable since at the same time it was being traded in the market at VND17,000-24,000, sometimes dropping to VND16,000.

They also refused to buy into the reasons Petrolimex gave for delaying its IPO.

They pointed out how many enterprises in the petroleum industry like BSR, PVOil and PVPower had successfully carried out their capital divestment plans or initial public offerings.

They said Petrolimex is in a much better place than all of them: It is the industry leader with the biggest market share and a distribution network covering the whole country.

This means the company should not find it too difficult to sell its shares, yet it is seeking to put off its IPO, and they said the reasons lie elsewhere.

The Government Inspectorate had reported in 2016 that Petrolimex had invested nearly VND2.26 trillion ($100.44 million) in non-core businesses between 2010 and 2013.

This included VND400 billion in PG Bank, VND171.36 billion in Petrolimex Insurance JSC, and VND51 billion in Petrolimex Land JSC (now known as Petroleum Logistic Services and Investment JSC) without approval from the Government.

The report charged the company with investing nearly VND232 billion in banking, insurance and real estate without stating it in its management board’s business strategy.

The company also authorised subsidiaries to invest VND414.66 billion in construction works using funds earmarked for making payments.

It also failed to divest from non-core businesses as ordered by the Government.

It had been instructed to divest VND622 billion worth of stakes in non-core businesses, but it only complied partially, pulling out only VND139.7 billion.

Experts also pointed to another reason for large State-owned enterprises failing to sell the Government’s stakes.

State capital ownership was divided into many small parts as being offered for sale. This made investors particularly foreigners did not want to buy the stakes because most of the investors wanted to have ownership that was big enough to be able to grasp power at the enterprises, experts said.

Ride-hailing apps ready for war

Competition is heating up in the app-based ride-hailing market with plenty of foreign and domestic firms like Go-Jek, AbeJ, MVL, Fast Go, and Vato entering the fray.

Nexttech Group, which specialises in providing payment solutions, has entered the market as FastGo with a wide range of services such as FastCar, FastTaxi and FastLuxury and launched the FastGo and FastBike apps.

The company targets a 30-40 per cent market share within two years.

Besides Ha Noi and HCM City, FastGo will also extend its presence to other provinces and cities across the country.

Indonesian firm Go-Jek has recently stared Go-Viet in 12 districts in HCM City with Go-Bike and on-demand delivery service Go-Send.

Vato has managed to draw more than 10,000 cars and motorcycles to its platform and is striving to strengthen its operations.

Mailinh Taxi has launched Mail Linh Bike services and promises to takie only a 15 per cent commission from drivers’ gross fares and not to increase fares during peak hours.

T.Net has signed up 17,000 drivers so far, almost three times the number it had at the beginning of this year. — VNS

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