When cash climbs aboard a merry-go-round

Monday, Mar 24, 2014 09:00

"It also cut policy interest rates by 0.5 percentage points, reducing the refinancing rate to 6.5 per cent, the discount rate to 4.5 per cent, and the overnight rate to 7.5 per cent."— Photo dantri


Last week the State Bank of Viet Nam decided to lower the the interest rate cap on bank deposits of up to six months by 1 percentage point to 6 per cent in an effort to boost credit growth and pump prime the economy.

It also cut policy interest rates by 0.5 percentage points, reducing the refinancing rate to 6.5 per cent, the discount rate to 4.5 per cent, and the overnight rate to 7.5 per cent.

But the central bank's move seems to have had no impact on deposits or lending, according to some commercial banks.

Many depositors had shifted from short– to long-term deposits to enjoy higher interest rates since most banks had already cut their rate on short-term deposits.

Besides the paradox continues of banks trying to increase credit growth and failing miserably – loans outstanding have fallen by 1.6 per cent this year – while businesses suffer from a crippling shortage of funds.

The central bank's decision to cut policy interest rates to encourage banks to further slash their lending rates has not enabled companies to get access to low-cost capital.

The director of a steel company, who declined to be named, said his company still has some old debts at interest rates of 13-15 per cent yearly.

"Now we want to get cheap loans from banks, but we cannot because of so many stringent procedures," he said.

Some analysts said the interest rates on old loans are not being reduced in line with the new policy.

To Hoai Nam, general secretary of the Small and Medium-Sized Enterprises (SMEs) Association, said: "SMEs account for 90 per cent of the country's businesses. But most of them are facing several difficulties in getting bank loans while banks usually give priority to major enterprises.

"If banks want to lend to increase credit growth, they must change their way of looking at SMEs."

Because banks have plentiful liquidity and are barely lending, the money they have at the State Treasury has soared to VND57 trillion (US$2.70 billion) compared to the normal level of VND20-25 trillion ($948 million-$1.8 billion).

The central bank has urged the Government to issue bonds in the first quarter to help the banking sector use its money productively while also raising money for its use.

As a result, many banks have used as much as 70 or 80 per cent of their funds to buy government bonds.

But as an unnamed analyst told the Viet Nam Economics Times newspaper, "When the Government cannot disburse the mobilised capital timely" the money will be deposited back in the banks. And so it will probably go round and round.

Profitable e-commerce

MasterCard's latest annual e-commerce survey done in 25 markets last year found that online shopping in Viet Nam is growing stably and that 94 per cent of online shoppers made purchases using smart phones.

Viet Nam's e-commerce market stood at US$2.2 billion a year, the same as the regional average.

However, online shopping has still been considered to a "fertile land" for investors to make profit as it is expected to annually grow at an average of 75 per cent per year and reach upwards of over US$5 billion by 2015.

According to the Department of Electronic Commerce and Information Technology, last year the number of people using the internet was equivalent to 36 per cent of the country's population, more than half of whom took part in online transactions.

A recent study by market research company Cimigo found that the average internet user in Viet Nam spends around 130 minutes online per day, a number that has tripled since 2008.

The rising numbers indicate that the e-commerce sector is poised for growth as an increasing number of people have begun to spend more time online, which undoubtedly exposes them to the growing number of consumer-to-consumer (C2C) and business-to-consumer (B2C) portals.

The most popular business model in the Vietnamese e-commerce industry is the online marketplace, a portal that features C2C and B2C shops.

Not wanting to miss the opportunity to exploit such a lucrative market, major IT companies but also those in other sectors are making a beeline for it.

Operators like Project Lana, Rocket Internet, Tiki.vn, VNG, hotdeal.vn, and a myriad of others specialising in e-stores are entering the market. In 2013 startups like Giao Hang Nhanh and Zship, logistics e-commerce services that could build businesses on top of the new e-shopping trend, mushroomed. And now portals like Suma.vn and Disieuthi.vn are even making forays into grocery.

Recently the Vingroup Joint Stock Company announced its entry into the e-commerce market by establishing the VinE-com Limited Liability Company with a capital of VND735 billion ($34.83 million).

VinE-com said it seeks to create a comprehensive online sales channel for all products and services.

The entry of VinE-com into the flourishing e-commerce market has sparked off a fierce battle among major online retailers.

But the spurt in online shopping websites has not been accompanied by a legal framework to regulate the market, thus making the market unreliable and enabling fraud.

Consequently, consumers' confidence has been eroded somewhat, resulting in the closure of some online shopping sites like Nhom Mua.

But the success of e-commerce, where one buys without seeing the product or seller, obviously depends overwhelmingly on consumer confidence.

To improve confidence, it is imperative that official agencies and e-commerce companies do certain things like improving e-logistics. Besides, every violation must be penalised severely, and both sellers' and buyers' awareness of e-commerce must be improved.

Foreign firms ignore Gov't

Many foreign invested enterprises (FIEs) in HCM City have failed to reregister their business with authorities though their licences have expired and the deadline for reregistration has been extended more than once by the Government.

The city Department of Planning and Investment reported that, as of January end, 90 FIEs in the city had expired licences but only two of them had renewed them. Half of the notices it sent to these firms have been returned saying the addressees were no longer at the addresses.

It does not know if the companies have ceased operations, dissolved their business, or simply ignored rules. However, some FIEs that have not registered afresh continue to operate as usual.

A Government decree issued last year mandates that all foreign firms whose licences have expired but do not reregister will have their licences revoked.

Thus, it is illegal for them to continue operating, and any contracts they sign with clients are deemed null and void.

FIEs licensed prior Amended Investment Law to July 2006 have to reregister not later than February 1, 2014, if they wish to continue business.

When reregistering they will be granted new investment certificates and be governed by the 2005 Enterprise Law. — VNS

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