A source from the State Bank of Viet Nam says that outstanding loans of joint-stock commercial banks nationwide reached VND1,200 trillion (US$57.1 billion) by February, equivalent to 55 per cent of the banking sector’s total.

Of the figure, outstanding loans classified as substandard amounted to about VND22 trillion ($1 billion) or 1.76 per cent of the total outstanding loans.

On average, the banks’ outstanding loans increased over 1.9 per cent each month while their substandard loans also rose by 0.16 per cent.

Experts said that the figure of joint-stock commercial banks’ substandard loans were still lower compared with the banking sector’s average rate (2.33 per cent).

They, however, are concerned that the banks’substandard debts increased in the first quarter of the year even when the central bank applied monetary tightening policies.

The Vietnam Economic Times quoted a State Bank official saying that in the current context, it was not surprising that the number of substandard loans had increased because production at many companies had become stagnant.

He said that enterprises’ goods consumption had not recovered completely after the economic crisis, so their financial situation had become worse. This caused debts to increase.

Commercial banks’ bad debts increased also because of poorly qualified bank staff. After the banks lent to companies, their credit staff did not monitor the use of these loans carefully verify whether they were being used properly or not. Consequently, the majority of the bank loans were pumped into infeasible high-risk projects, he said.

He also said that commercial banks’ current figure for substandard debts was not accurate, saying the real figure could be more.

According to independent market watchdogs, the Credit Information Centre was designated to manage and provide information about credit activities, particularly at commercial banks. One of its main functions is to forecast credit risks.

However, it has not implemented this function yet because, with current regulations, the agency has limited authority and is only allowed to receive certain insufficient information.

The result is that the agency is unable to know which companies and individuals have bad debts with many credit organisations; thus, making the control of bad debts a difficult job. As a result, credit risks are concern at commercial banks.

Foreign telecoms recommit

Some foreign investors in the Vietnamese telecommunications industry have decided to increase their investment capital, which has surprised some.

Two foreign newcomers in the Vietnamese mobile market, Hutchison Telecommunication (the investor of Vietnamobile) and Gtel Mobile (the investor of Beeline), have been said to begin to face financial difficulties.

Even so, foreign partners including Hongkong-based Hutchison Telecommunication and Russia’s Vimpelcom completed all necessary procedures to increase their legal capital or investment capital.

Nguyen Van Tu, deputy director of Ha Noi’s Department of Planning and Investment, said Vietnamobile had sent an application to increase its investment capital by US$350 million.

If so, Hutchison’s investment capital in the Vietnamobile company would reach $1 billion, of which $700million was already disbursed.

In addition to pumping in more investment capital, partners of Vietnamobile also completed paperwork to convert to a joint stock company from the current business co-operation contract.

Unlike Vietnamobile, Beeline did not increase the investment capital but the legal capital in order to expand its contribution to the current joint venture.

Under a signed agreement to set up Gtel Mobile joint venture between Russia’s Vimpelcom and Viet Nam’s Gtel, the former contributed 40 per cent, equivalent to $267 million of the joint venture’s total legal capital while the latter made up 60 per cent.

A source at Vimpelcom said the company planned to inject an additional $500 million into the Gtel Mobile Joint Venture by 2013.

Independent market analysts, however, said the foreign telecom investors’plans to increase capital sources in the Vietnamese telecom industry would be considered carefully and then approved by the authorised agencies.

This is due to Viet Nam’s current legal regulations that allow foreign investors to contribute a maximum 49 per cent to the joint ventures’ capital.

Alexey Blyumin, general director of Gtel Mobile, said that Vimpelcom had great expectations for its business in Viet Nam and its position in this market and in the Southeast Asian region.

Market experts said that the domestic telecom market was facing fierce competition but still had potential to develop. However, foreign investors who came late to the market like Hutchison and Vimpelcom should have proper investment strategies to ensure that they had advanced technology and capital, if they want to find a firm foothold in the market.

M&A deals on the rise

Activities relating to selling, buying or merging enterprises have flourished since early this year, with many business transactions worth hundreds of millions of US dollars. Business difficulties and lack of capital at these businesses are considered to be the main reasons causing the situation.

Research in the 2011 Grant Thornton International Business Report showed that 20 per cent of Viet Nam’s private enterprises would be converted within three years.

Pricewaterhouse Coopers (PWC) also said that in 2010, 345 cases related to the transfer of ownership of private businesses were implemented in Viet Nam with the total value of nearly $ 1.75 billion, and 295 cases at $1.1 billion in 2009.

The buying and selling of private enterprises would flourish more this year, the company said.

The owner of a small enterprise involved in the cooking processing industry said he was going to sell at least 45 per cent of the company’s total capital in order to be competitive.

“The money that I earn will be used to renovate the production line to improve production capacity and product quality,” he said.

In mid-March, Thien Minh, a tourism private company, spent $45 million to buy a chain of Hong Kong’s five Victoria hotels in Viet Nam and Cambodia.

Recently, the Sai Gon Paper Plan also sold 38 per cent of its shares to a group that also was involved in the paper industry and Japan’s funds management company.

Enterprises involved in infrastructure development, including electricity, roads, wharves, and consumer goods production, are among the best sellers during this time.

According to the Funds Management Company Mekong Capital, emerging private enterprises and those that have shifted to private status have become more favourable because the value of Vietnamese private enterprises was cheaper than before.

Don Lam, general director of VinaCapital, said the market lacked companies whose value was more than VND1 billion, so this was a good time for the Government to strengthen the equitisation of major state-run enterprises or economic groups.

The Government is in great need of both foreign and domestic capital to operate the country. So it is necessary to cut capital in the state-run enterprises to ease the state’s capital burden.

VinaCapital is seeking opportunities to invest in companies with potential, such as Vinaphone, MobiFone and petrol enterprises.

Central bank raises key rate

The State Bank recently raised the refinancing rate for commercial banks from the 13 per cent to 14 per cent per annum, the discount rate from 12 per cent to 13 per cent per year, and the overnight rate from 13 per cent to 14 per cent. However, the prime rate in Viet Nam dong has been retained at 9 per cent.

This is the fourth time since February 17 that the State Bank of Viet Nam has revised key interest rates. The move is indicative of its determination to tighten the money supply to harness in inflation, which soared to almost 10 per cent in the first four months versus the 7 per cent target for the entire year.

The higher interest rates mean that banks will find it more expensive to borrow capital on the inter-bank market. Finally, enterprises at the bottom of the chain will suffer from higher lending rates.

Clearly with little lending going on and deposits flat or declining, smaller banks are being forced to raise their funding needs in the interbank market where rates have been very high, said Mac Cana, managing director of HCM City Securities Co.

At present, a slew of banks have mobilised funds at rates way higher than the 14 per cent cap set by the central bank. In effect, the lending rate applicable to enterprises is often more than 20 per cent per annum.

Source: VNS