Tight monetary policy not likely to have major impact on property, securities: analysts

Monday, Oct 29, 2018 08:08

Many analysts have expressed concern that restricting loans to high-risk sectors such as real estate, securities and consumption could slow down economic growth, especially banking and the targeted sectors. — Photo dantri.com.vn

The State Bank of Viet Nam has shown it is determined to continue with a tight monetary policy for the rest of the year with its decision to refuse to increase bank’s credit limits to constrain inflation and strictly control lending to high-risk sectors.

Many analysts have expressed concern that restricting loans to high-risk sectors such as real estate, securities and consumption could slow down economic growth, especially banking and the targeted sectors.

Using data from the Ho Chi Minh City Securities Corporation, they said in the first half of the year, the 13 listed banks’ pre-tax profits increased by 52.8 per cent and credit by 9.4 per cent year-on-year.

However, in the third quarter, their profit growth decelerated as credit growth virtually ground to a halt down due to the central bank’s tight monetary policy.

As a result, first nine months’ credit growth was only 11 per cent and profits were down to 41 per cent.

However, many banks said the banking sector’s situation remains very positive and lenders would continue to increase their incomes from other sources in the coming months.

Speaking about the impact of the SBV’s tight monetary policy on the securities market, analysts’ opinions varied.

Nguyen Phuong Lam of Rong Viet Securities Corporation said the securities market and credit growth have always had a very close relationship, and so if the central bank continues to tighten things, the securities market would be hit.

But Truong Hien Phuong, director of KIS Vietnam Securities Corporation, said the central bank’s decision to not increase credit quotas to banks would have not much impact on the stock market.

The country’s economic growth remains strong, and inflation and export figures are good, the main factors affecting the securities index, he said.

As of September 20 credit growth had stood at 11 per cent while the banking sector’s full-year target is 17 per cent, meaning credit available in the remaining period is fairly plentiful.

Though the SBV requires credit institutions to limit lending to the real estate sector, this too is not expected to severely affect enterprises in this sector.

Experts said direct lending to the real estate sector now accounts for only 8.25 per cent of the banking sector’s total outstanding loans.

Many property development companies have already diversified their sources of funding for their projects, with many issuing shares or seeking foreign investment, they pointed out.

Banks unable to sell collateral to recover bad debts

October 8 was the deadline for registering to participate in the auction to sell the assets of Thuan Thao Nam Saigon Joint Stock Company and 95 individual clients. However, nobody registered.

The auction was due to be organised by the Viet Nam Asset Management Company (VAMC) and Bank for Investment and Development of Viet Nam to recoup the debts from Thuan Thao Nam.

As of June this year the company and its 95 individual clients owed more than VND1.9 trillion to the VAMC and more than VND473 billion to BIDV.

It was a rerun of the previous two auctions of the assets of the company in August and September.

Its assets that went under the hammer included plots of land and properties in districts 1 and Binh Chanh and 5.2 million shares of the company owned by chairwoman Vo Thi Thanh.

VAMC’s auction of Sai Gon One Tower for the Sai Gon One Tower Joint Stock Company’s failure to repay its outstanding loan of VND7 trillion ($308 million) in early 2017 too had met with a similar fate: no one registered to participate in the auction.

Market observers said most of the bad debts of banks and the VAMC have collateral including high-value properties and equipment but it has not been easy to sell them despite the issuance of Resolution 42 on how to settle bad debts issues legally and easily.

The resolution provides comprehensive guidance for the seizure of collateral. To recover bad debts, it allows credit institutions, foreign banks and the VAMC to seize collateral owned by a borrower or third party, and enjoins the police and other local authorities to help them do this.

Besides, the bad debts can be sold to any legal entity, including investors, who do not need a licence for debt trading, while the VAMC can use market norms to buy and sell debts.

But not much progress has been achieved on this front.

According to the VAMC’s business plans outlined for this year, it will buy a maximum of VND32 trillion (US$1.4 billion) worth of non-performing loans (bad debts) using its special bonds and another VND3.5 trillion for cash.

It targets recovering some VND34.5 trillion worth of bad debts this year.

But many experts are not optimistic these figures can be achieved because when the VAMC actively buys bad debts from credit institutions it is not able to sell assets at any speed.

To return to why its auctions have been faring so poorly, some analysts said most of the mortgages were of high-value assets and thus required the buyers to have deep pockets and thorough plans to use them after buying.

Others said the reserve prices were too high and so the properties were not too attractive to buyers.

They said while Resolution 42 allows the VAMC and credit institutions to sell bad debts at market prices or even lower than their book value, they still fix high prices since they do not fancy a haircut.

Collateral for 70 per cent of bank loan is in the form of property, but many lack a certificate of land use rights, and without them it is very difficult to sell these assets, they pointed out.

The lack of a market for buying and selling debts is also a big challenge for the VAMC.

Resolution 42 was just simply an open for the setting up of a debt market, but to establish and regulate such a market need specific regulations governing its operations, experts said.

Besides, a good infrastructure is also needed for the market, they said.

Ride hailing firms to become on par with taxis?

The latest draft of a transport ministry decree on conditionalities for automobile transport businesses includes many recommendations which are expected to make ride hailing firms operate like traditional taxis.

The ministry proposes that app-based taxis like Grab with less than nine seats should be treated on a par with traditional taxis to ensure fairness, transparency and the same responsibilities towards customers.

If this regulation is approved, all vehicles will have to attach a "TAXI CAR" sign on the vehicle, list complete information on the vehicle as prescribed and there must be a light with the word "TAXI" fixed on the roof in addition to following many other regulations applicable to traditional taxis.

The draft decree comes at a time when competition between ride-hailing companies and traditional taxis has not cooled despite the exit of Uber from the Southeast Asian market last March.

The traditional tax firms have continued to complain about the unfair competition they are facing.

While the Ministry of Transport hopes the new decree will help ease the situation and give authorities more power to intervene in the operations of ride-hailing firms, many analysts disagree.

They said forcing ride-hailing cars to work like traditional taxis is contradictory to the Government’s efforts to remove at least 50 per cent of current business conditions.

Ride –hailing businesses like Grab would have to expand their management greatly to manage and monitor traffic safety issues, thus increasing costs.

This means the benefits to consumers and ride-hailing service providers from saving costs would cease, and digital innovation and implementation of a sharing economy would have a setback, they said.

They said the Government should try to encourage new investment forms and business models in an open and fair environment to keep up with industry 4.0 trends instead of approving the decree. —VNS

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