Tumbling interest rates raise concern

Monday, Sep 08, 2014 08:12

Many people are unsure where they should invest their money to maximize their income. Photo vietq

In June 2013 Hoang Thi Kim Hoa deposited VND150 million (US$7,000) in a bank near her house in HCM City. With the interest rate being 6.8 per cent, she got more than VND800,000 each month. But since then the rate has been falling relentlessly, reaching 5.3 per cent last month.

With the rate being so low, Hoa is now unsure where she should invest her savings to maximise income.

Her anxiety is shared by many people since the housing market has not recovered either and gold and securities seem volatile and risky.

In late August, though the State Bank of Viet Nam kept the 6 per cent rate cap on short-term deposits unchanged, several banks, both State-run and joint stock, cut their rates by 0.1-0.5 percentage points.

Vietcombank cut its rate for one-month deposits by 0.2 points to 4.8 per cent. For two to nine month terms it cut the rate by 0.2 points to 5.7 per cent, and for 24 to 60 months, by also 0.2 points to 6.8 per cent.

Asia Commercial Bank cut its rate to 6.9 per cent for 13-month deposits. For three, six, and 12 months the rates have fallen to 5.2 per cent, 6.3 per cent, and 6.6 per cent.

There is a perception that banks are slashing the deposit interest rates to further cut lending interest rates. But analysts dismiss the notion, saying loan interest rates have been cut so much that they cannot be cut any further at this time.

They see the deposit rate cuts as a way for banks to improve margins after deposit growth raced ahead of credit growth at most banks in recent months.

Vietcombank, for instance, reported 14 per cent deposit growth but only 6.6 per cent credit growth in the first half. For the Bank for Investment and Development of Viet Nam, they were 14 per cent and 1.66 per cent respectively.

A central bank report said that in the first seven months deposits grew at nearly 7 per cent and lending at only 3.68 per cent.

This has caused excessive liquidity, which has forced many banks, struggling to lend more, to pare deposit interest rates instead.

This has also had the benefit of easing the flow of funds into the banks as investors look for other, more profitable asset classes.

Besides, the inflation rate is very low, at only 0.22 per cent in August, and the consumer price index has risen only 1.84 per cent in the first eight months, encouraging banks to cut deposit rates.

But the fact is only the large banks have cut interest rates sharply, with small and weak banks keeping them at around 6 per cent for one month and 7.5-8.5 per cent for 36 months.

PGBank is thought to offer the highest interest – 6 per cent for one month and 8.5 per cent for 36 months.

The question that arises then is: what happens when there is a big difference in interest rates between banks?

Some companies that can get big loans from banks at low interest rates deposit the money in other banks at higher rates.

Even some banks resort to this. Lenders sitting on piles of cash ask their customers, normally big businesses, to help them deposit some of the money in other banks that offer higher interest rates.

Analysts warned that this subverts interbank market regulations and could possibly affect the entire banking industry.

Many firms eye listing

The number of companies listing in the securities markets is expected to increase significantly later this year and next year.

The newcomers would mainly be commercial banks.

The State Bank of Viet Nam has ordered all banks to list by 2015 after the Government indicated that it wants the banking industry to further improve its transparency.

Analysts said however that achieving this task depends on many factors.

At its annual shareholders' meeting this year, Techcombank announced plans to list soon. Many others banks like NamABank, LienVietPost Bank, and VPBank also plan to list.

But all these plans remain on paper due to many reasons.

Some of them have failed to meet the listing conditions by having a high bad debt ratio or being in the process of merging or acquiring.

Some banks are eligible for listing but are reluctant to do so for reasons they are not keen to disclose.

The HCM City Stock Exchange (HOSE) said it has also been getting applications from many companies for listing before the end of this year.

They include Thong Nhat Production and Investment Joint Stock Company, Van Dien Fused Magnesium Phosphate Fertilizer Company, and Thien Viet Joint Stock Company.

Quang Binh Import and Export Company wants to list 32 million shares, and the Southern Fertilizer Company, 43.54 million shares, both at par.

The Ha Noi Stock Exchange saw Duc Giang Chemical and Detergent Powder Joint Stock Company list at VND30,000.

Yet more firms are making preparations to go public before year-end: CEO Joint Stock Company is seeking to list 34.3 million shares and Viet Thai Joint Stock Company, 5 million shares.

Asked about the scramble to go public, analysts said that the recent surge in stock prices, especially of newly-listed companies like The Gioi Di Dong and Thuy Dien Mien Trung, has encouraged others.

Thus, in the first half a total of VND127 trillion (nearly$6 billion) was raised through the securities market, of which VND7.4 trillion ($349.8 million) came from initial public offerings.

Metro sale

The HCM City Department of Tax has asked Germany-owned Metro Cash & Carry Vietnam to report about the sale of its Viet Nam operations to Thailand's Berli Jucker Public Company Limited (BJC) to estimate capital gains tax.

The deal to sell Metro Cash & Carry's 19 wholesale outlets in Viet Nam to BJC for US$879 million was struck in Germany a few weeks ago, and the two sides plan to wrap up the transaction next year.

The HCM City Department of Planning and Investment, which is responsible for overseeing Metro Viet Nam's investment activities, has not received official communication from the company about the sale, while the tax department has not received information about its financial details.

Both agencies only got information about the transaction from news reports.

According to the tax department, if the deal generates a profit, Metro would have to pay capital gains tax as stipulated in Circular 123/2012 from the Ministry of Finance.

Metro Cash & Carry Vietnam's charter capital is around $103 million. The total investment in its 19 outlets in Viet Nam amounted to over $300 million as of May last year.

Figures about its subsequent investments are not available, but observers said they are probably modest due to the economic situation that has caused an adverse impact on most distributors.

Metro has made an estimated capital gain of around $579 million.

The costs related to the sale now need to be determined to finalise the tax Metro has to pay.

The German wholesaler reported losses of nearly VND600 billion as of 2013 after 12 years of operations in the country. — VNS

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