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Oct 10 2013

Vietnam’s economy stable, but slow reforms hinder growth: Fitch

vietnam%e2%80%99s economy stable but slow reforms hinder growth fitch

Vietnam’s economy has survived global financial volatility but slow restructuring in the banking sector and state owned enterprises (SOEs) continue to weigh down the country’s medium-term economic prospects, says Fitch Ratings.

“The macroeconomic stabilization trend has persisted due to more effective management of monetary and fiscal policies. This is apparent through a current account position which is on course to remaining in a small surplus, and annual inflation which should be contained within the high single digits,” the rating agency said in a recent commentary.

The economy’s stable situation is also supported by GDP growth, having bottomed out with Q3 growth at 5.5 percent year-on-year, up from around 4.9 percent in the first half of this year, Fitch said.

Moreover, the macro-stabilization trend has not been thrown off course by the financial volatility that has hit regional emerging economies hard, the agency added.

In India and Indonesia, such volatility has raised currency strains, left corporate and bank balance sheets somewhat vulnerable, and resulted in policy tightening.

Fitch said one reason for Vietnam’s relative financial stability is the shift in the current account position to a surplus since 2011.

“This has sharply lowered the net external financing requirement and helped rebuild foreign-currency reserves to around US$27bilion by end-May – around 2.7 months of current external payments.”

Another reason is that Vietnam is less dependent on the type of portfolio flows that have proven rather fickle and heightened global investor scrutiny of emerging-market vulnerabilities, according to Fitch.

The agency said the last reason is that Vietnam has seen an increasing trend in foreign direct investment (FDI). The country attracted US$15 billion in FDI in the nine months of this year, up 36 percent from a year ago, which has buffered the balance of payments.

“Vietnam has historically attracted more FDI (as a percentage of GDP) than its rated peers, and this has also contributed to a structural transformation of the export base,” Fitch said, adding that this fact has supported a robust pace of export growth since 2012.

However, the rating agency remains doubtful whether Vietnam’s GDP growth rate can pick up sharply and revert to a 7 percent level – as was the case in the last decade.

Fitch said there are two important reasons for its cautious view.

“First, the banking sector remains encumbered by substantial bad loans. We do not think the current asset restructuring measures – through the creation of a state-owned asset management company (VAMC) – will replenish capital sufficiently or swiftly enough to bring about a healthy pace of credit extension to the productive sector any time soon.”

Fitch said though greater foreign participation in the banking sector, as hinted recently by the prime minister, could bring in much-needed capital and facilitate a quicker restructuring of Vietnamese banks; the details and timing of any such liberalization is still uncertain.

“Second, SOE reforms have progressed slowly at best. Recent statements suggesting a possible speeding-up of their ownership and governance structures would accord with greater transparency and market-driven principles, and could be credit positive.

“But removal of political protection, and introduction of competition in this area, is easier said than done.”

In its conclusion, Fitch said Vietnam’s macro-stabilization is evident, but the prospect of a sharp improvement in growth prospects is not obvious.

“Vietnam’s banking sector has extended significant credit, with a private credit/GDP ratio of 95 percent at end-2012. Moreover, the highly indebted and largely unreformed SOEs play a very large strategic role.

“Thus a protracted pace of asset restructuring and SOE deleveraging, unless speeded up, will continue to weigh on economic activity and place large contingent risks on the sovereign’s (B+/Stable) credit profile.”

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Oct 10 2013

Soco doubles estimate of Vietnam well to 200 million barrels

soco doubles estimate of vietnam well to 200 million barrels

Soco International Plc (SIA), a U.K. explorer focused on Africa and Asia, said a well off Vietnam holds as much as 200 million barrels of oil and gas, double its best previous estimate. The shares rose.

The TGT-10XST1 well on the H5 block of the Te Giac Trang, or TGT, field produced more than 27,600 barrels of oil equivalent a day, the company said today in a statement. Soco completed tests at three zones in the well.

The test increased the well resource estimate to 150 million to 200 million barrels, up from the previous guidance of 50 million to 100 million barrels. “It’s the biggest well I’ve ever been associated with in 37 years or so,” Chief Financial Officer Roger Cagle said in a phone interview.

Soco shares advanced 4.4 percent to 415.60 pence in London in the biggest gain since July 22. It was the best performer on the FTSE 350 Oil Gas Producers Index, which fell 0.3 percent.

The company, based in London, plans to conduct tests at its TGT floating production, storage and offloading vessel for higher capacity to accommodate increased output from the field and volumes from Talisman Energy Inc. (TLM)’s nearby deposit. The latest well and the “imminent gas sale” contract will boost the total TGT field resource estimate to more than 1.3 billion barrels of oil equivalent, Cagle said.

“This is another excellent result at the TGT field and confirms its status as a world-class asset,” VSA Capital Ltd. analyst Dougie Youngson wrote in a report. Soco has “potential as a takeover target.”

Cagle declined to comment on any possible bids.

“You’d think that people who are interested in production assets would be more interested now than they have been before,” the CFO said. “There has been plenty of interest.”

http://www.thanhniennews.com/2010/Pages/20131004-Soco-Doubles-Estimate-of-Vietnam-Well-to-200-Million-Barrels.aspx

Oct 10 2013

Japan’s JGC to build Vietnam $3.2 bln oil refinery for UK firm

japan%e2%80%99s jgc to build vietnam 32 bln oil refinery for uk firm

Japanese-owned JGC Corp has won a bid to build a US$3.2-billion oil refinery in the central province of Phu Yen, online newspaper VnExpress has reported.

An engineering, procurement, and construction contract was signed October 6 between JGC and the UK’S Technostar Management, which plans to build the Vung Ro refinery.

The construction is expected to take 48 months, the newspaper said, but the start of the works depends on land acquisition and clearance, an unidentified official from the Phu Yen Department of Planning and Investment was quoted as saying.

Though local authorities are working to clear the project site, it is very unlikely that construction could begin this year, he said.

In the meantime, the authorities plan to seek financial support from the central government to build infrastructure like electricity network and roads in the area, he said.

Approved in 2007, the project was delayed for two years as a fallout of the economic slump, and its construction plans were revised in October 2012.

It was also allowed to double its capacity to eight million tons a year earlier this year, and investment to $1.7 billion.

According to the investor, Vung Ro will provide  around 1,300 jobs and large volumes of petroleum products for the local market.

Vung Ro is one of two refineries that are underway in Vietnam, which now has only one — Dung Quat, which produces around 6.5 million tons a year.

The Nghi Son Refinery with a capacity of 10 million tons is being built in the north-central province of Thanh Hoa.

Authorities are considering another plant that Thailand’s PTT Pcl. energy company plans to build at a cost of $27 billion and with an annual capacity of nearly 30 million tons in the central province of Binh Dinh.

The government forecasts demand for petroleum products to reach 27 million tons per year by 2025.

Vietnam, a producer of crude oil, imports most of its fuel needs.

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Oct 10 2013

Inspectors shed light on dodgy goings-on at Vietnam power monopoly

inspectors shed light on dodgy goings on at vietnam power monopoly

  E VN technicians work on a grid in Hanoi / PHOTO: NGOC THANG

On August 1 state-owned Electricity of Vietnam, which produces 70 percent of the electricity in Vietnam and is the country’s sole distributor, raised power prices for the fifth time since 2011.

Its deputy general director, Dinh Quang Tri, said the hike was necessary to cover increasing costs, including that of coal and gas, adding that even with the latest increase the group would not be able to cover its huge accumulated losses. 

It was EVN’s usual claim to justify price hikes, one that has always raised doubts among consumers and economists due to the lack of transparency in its price calculations and business performance.

The doubts have been validated by a shocking report by government inspectors earlier this week – EVN suffered losses due to dud investments of billions of dollars including in non-core areas, they said, besides which it had included many unjustified expenses in calculating costs.

They said that as of 2011 EVN had invested more than VND121 trillion (US$5.7 billion) in “outside businesses” including in non-core areas, or 150 percent its chartered capital, but failed to make any profits on them.

It had unreported losses of VND2.19 trillion ($103.8 million), they found.

The inspectors said the company’s bosses should be held responsible and everyone else responsible should also be identified and punished.

EVN had violated the Ministry of Finance’s regulations by investing more than its chartered capital in “outside businesses,” they said.

More than half of the investments were actually loans to 23 subsidiaries, they said, and EVN had borrowed the money, mostly from foreign creditors, with the government’s guarantee.

But they did not mention which subsidiaries, how much to each, or how the loans were utilized.

Many of EVN’s subsidiaries also ended up suffering huge losses.

The National Power Transmission Corporation has around VND3.1 trillion ($146.7 million) in the red, and the Southern Power Corporation lost over VND1.2 trillion. The Electric Power Trading Company owes more than VND22 trillion ($1.04 billion) to power plants, around half of it overdue debts to the Vietnam National Oil and Gas Group (PetroVietnam).

The inspectors said EVN also invested nearly VND2 trillion ($94.6 million) in “risky” sectors like insurance, stock, and banking, and violated laws by holding more shares than allowed in companies in non-core industries.

Other investments included nearly VND3 trillion in EVN Telecom which EVN lost completely and ended up selling the company to military-run Viettel last year, they said. Viettel has yet to pay a dong for the purchase.

They also slammed EVN for agreeing not to charge Viettel for using its telecom cables for 30 years when selling EVN Telecom, saying the group should have charged the military company to cut its losses.

The agreement has allowed Viettel to cut its prices and earn over VND354 billion ($16.7 million) a year, or VND10.6 trillion ($500 million) during the 30 years, they said.

EVN spent more than $23 million on a program to get master’s degrees for 164 of its staff, but the degrees awarded by the US’s Griggs University are not recognized by Vietnamese agencies, they said.

Not real expenses

According to the inspectors, among many “unreasonable” expenses that EVN included in its PL account was nearly VND600 billion ($28.4 million) for building houses, villas, tennis courts, swimming pools, and other facilities for its staff. It accounted for them as “administrative buildings” for six thermal power plants in Can Tho, Hai Phong, Quang Ninh, and other places.

But they should have been included in the projects’ capital costs according to regulations, they said.

In 2011 EVN’s expenditure increased by more than VND223 billion ($10.5 million), mainly because it wrongly calculated costs for 11 projects, they said.

After the inspectors announced their findings, many economists like Pham Chi Lan have urged EVN and the Ministry of Industry and Trade to recalculate its costs.

EVN’s latest 5 percent hike on August 1 took power prices to VND1,508.85 (7.1 cents) per kilowatt-hour.

Speaking to Infonet, an online newspaper belonging to the Ministry of Information and Communication, economist Ngo Tri Long said agencies need to clarify how costs are calculated and whether EVN increased prices to make up for losses it incurred elsewhere.

Le Dang Doanh, a veteran economist, slamming EVN for squandering away trillions of dong in taxpayers’ money despite being a state-owned company, said: “[The government] needs to give people an answer for this.”

Doanh, a former head of the Central Institute for Economic Management, said the ministries of Industry and Trade and Finance must also be held responsible.

The government had ordered, even before the inspectors found the goings-on, EVN to pull out its investment in five real estate, insurance, stock, and construction companies and AB Bank by 2015.

Not big

Following the inspectors’ conclusions, EVN sent a release to the media Tuesday saying that of the amount it is accused of investing in non-core areas, nearly VND50 trillion ($2.4 billion) went to subsidiaries that produce and trade electricity.

The loans of around VND70 trillion ($3.3 billion) it had given its subsidiaries were also spent on electricity projects, it said.

It is trying to pull out the VND2.1 trillion investments it has made in non-core sectors like insurance and banking by 2015 in accordance with the government’s orders, EVN said.

The group also claimed that it built the villas and other things for its staff from profits or loans, and the costs were not included in the PL account.

In an interview with Vietweek, EVN board chairman Hoang Quoc Vuong had said the company has “basically” abided by government regulations when calculating expenses and gets its accounts audited every year.

EVN was just being “humane” in building houses, tennis courts, and kindergartens for employees working in remote areas, he claimed.

The company wants to attract skilled people to operate projects worth billions of dollars, he said.

He told Tuoi Tre newspaper that while there was nothing wrong with the inspectors’ conclusions, some points were not fully explained and so are misleading.

For knowledgeable people, EVN’s so-called wrongdoing as reported by the inspectors would “not be big,” he said.

Electricity of Vietnam and its subsidiaries have borrowed around VND45.8 trillion ($2.2 billion), including $888 million from official development assistance and foreign loans, in the first nine months, online newspaper VnEconomy quoted the company as saying Wednesday.

Meanwhile, PetroVietnam has allowed EVN to pay nearly VND10 trillion ($473.3 million) its subsidiary, Electric Power Trading Company, owes in installments.

EVN will pay VND2.65 trillion this year and VND7 trillion in the next seven years along with VND1 trillion in annual interest, it said.

The State Bank of Vietnam reported Wednesday that EVN owed VND118.84 trillion ($5.6 billion) to banks as of July 31.

It quoted the central bank’s credit department as saying that the electricity industry needs about $4.9 billion every year until 2020 for the nation’s power development program.

While EVN and its member companies play a key role in it, they are only capable of bringing in 20-30 percent of the money and have to rely on loans for the rest, it said.

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Oct 10 2013

Land of heroes, diligent rats, music and dance

land of heroes diligent rats music and dance

Ba Na residents of a Central Highlands district in the middle of mountains and forests live a life of hard work and


Ba Na people dance and play cồng chiêng (gong) in Dak Smar Commune, K’Bang District, the Central Highlands province of Gia Lai / PHOTO COURTESY OF TUOI TRE

As we made our way to K’Bang District, I reflected on an important fact about the destination that made me all the more curious about it.

The Central Highlands district was home to Dinh Nup – a national hero in Vietnam’s revolution against the French colonial regime.

Nup, belonging to the Ba Na ethnic minority, is the protagonist of popular war novel Đất nước đứng lên (The uprising country) by Nguyen Ngoc that we were taught at school.

Located in the northeastern part of Gia Lai Province, the district consists of a capital town and 13 communes. From An Khe Town, we went along 669B road to reach K’Bang. The road has many tricky turns, but it also has many trees that help lessen the trip’s hardship for visitors.

Since we wanted to visit Ba Na villages, we had to make our way through roads named in the ethnic group’s language that were quite difficult to remember.

Although it was in the middle of the rainy season, the sky

was clear and allowed us to enjoy the sunrise. Instead of strong winds there were refreshing breezes.

The landscape was a painting masterpiece – a harmonious combination of green forests, yellow corn fields, and red soil newly turned over.

We visited K’roi Village in Dak Smar Commune. The village has mountains at its back and the Ba River in the front. An arched bridge more than ten meters long and some three meters wide helps residents cross the river.

We stood on the bridge, enjoying the breeze and the sight of the upstream area of the river where water flowed gently, but we were also saddened by the fact that the lower part was polluted and dried out by a nearby hydropower plant.

It was refreshing to see locals bathe in the water after a day of hard work. It looked much more relaxing and rejuvenating than a shower in a modern bathroom.

We headed next to Kon Pne Commune, where a traditional festival called lễ hội dúi (bamboo rat festival) was being celebrated.

The festival is only held by Ba Na people in Kon Pne, dubbed the “kingdom” of many species of bamboo rats. Locals consider the rodent species a symbol of diligence, so they organize the festival at the beginning of a new rice harvest, praying for a good crop. They also pray that their children will work hard.

The locals prepare for about a week to celebrate the two-day festival, including bamboo rats and a jar of rượu cần – traditional wine that is made in the Central Highlands and does not go through any distillation.

After all the people in the neighborhood had gathered, the festival got going with a ritualistic prayer by an old patriarch. Then, men and women performed the traditional cồng chiêng (gong) and dance.

After hearing a lot about the Ba Na people’s dancing, I finally had a chance to witness it with my own eyes. It was amazing. People danced and laughed endlessly with great energy, unmindful of an unexpected shower.

One young man told me: “The party will stop only when the fire dies.”

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Oct 10 2013

Ho Chi Minh City hotel celebrates French cuisine

ho chi minh city hotel celebrates french cuisine

The three chefs from Lyon will participate in the culinary festival, taking place in three days, starting from September 20 at Sofitel Saigon Plaza

Sofitel Saigon Plaza at 17 Le Duan Boulevard, District 1, has announced its “Lyon Culinary Festival,” featuring food from Lyon, France’s third largest city that for 76 years has been recognized as the country’s gastronomic capital.

The event, taking place only for three days from September 20-22, will see participation of three famous chefs, including one MOF Chef (MeilleurOuvrier de France) known as the Best Craftsmen of France, William Jacquier, as well as Bruno Blunzer and Laurent Bouvier.

The festival will offer connoisseurs Emotion, Magnifique menu at L’Olivier restaurant and Sunday Brunch at Cafe Rivoli, starting at VND680,000++ per person for a three-course meal.

Traditional French dishes such as Oeufs en Meurette, Lyon-style salad Paté en croute, chicken liver cake, Nantua sauce, onion confit with Beaujolais sauce, omelet with prawns, and Lyon’s supreme sauce will all be available at the culinary festival.

There will be Lyon delicacies including Coq au vin, apples doormat, poultry in vinegar with a small vegetable casserole, piglet Jaret confit with lentils, and Cervelle de canut and St, Marcelin cheeses will also be available at the event.

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Oct 10 2013

Vietopia, Asia’s largest edutainment city, slated for opening in HCMC

vietopia asia%e2%80%99s largest edutainment city slated for opening in hcmc


Vietopia, an indoor educational and entertainment city spread over more than 30,000 sq.m. in Ho Chi Minh City, is the largest of its kind in Asia.

Vietnamese will soon have the opportunity to discover Vietopia, Asia’s largest educational city for children. Behind this US$25-million development is the investors’ successful aspiration to gather support from businesses to help educate future generations.

Vietopia, a project by HimLam Vietnamese Kid Intelligence Development JSC (HimLam ViKid), will follow the education – entertainment model (Edutainment) that has proved very successful in many countries worldwide.

Located in District 7, Ho Chi Minh City, on an area of more than 30,800 sq.m., including 22,750 sq.m. of construction, Vietopia is designed as a miniature city presenting more than 70 typical jobs and more than 100 first-person vocational activities. It can receive 3,500 children every day.

Vietopia will bring children to an adult world with many activities amid lively music and colors. Children will be drawn into first-person games that help them discover the job of their desire, learn working methods and financial management as if in real life.

An indoor edutainment complex, Vietopia will offer unprecedented job models like a space science institute, environment study institute, forest resources study institute, and underground gas factory.

All its vocational activities will be highly dynamic and interactive. Parents can witness their kids’ joy and excitement as they step into a spacecraft in their spacesuit, examine patients like a doctor, do interviews like a journalist, and share with mom and dad the first ever cake they baked hot from the oven.

To be equipped with state-of-the-art technology, Vietopia assures parents that their children can enjoy a safe and educational environment indoors, unaffected by the weather.

Part of the facility will serve parents, providing space for reading, watching movies, exercising, and having useful discussions related to child raising and education besides a cafeteria.

All hands for the children


Ms Nguyen Que Anh, chief executive officer of HimLam ViKid

The Vietopia project has been underway now for three years and is slated to open in early 2014. Ms Nguyen Que Anh, chief executive officer of HimLam ViKid, said the project originated from her own concerns as a mother.

“I had my first child when I was living in Japan, which has a really great educational environment for children.

“When I returned to Vietnam, I realized that it takes good environment to educate your children. And it takes a lot of help from many people to create such an environment.”

Her inspiration was shared by many other investors who also want to present the best for children.

Hoping to make Vietopia accessible to more children, HimLam Vikid welcomed all support. At similar edutainment parks in Japan, South Korea, and Thailand, tickets cost between US$38 and $58.

“For a more reasonable ticket price for Vietnamese children, we need support from many sponsors, especially those whose brands are well known for community work,” Ms Que Anh said.

Besides funding from the World Bank, Vietopia has received support from many famous multinational and local brands that share similar interests.

Looking back at the past three years Ms Que Anh said Vietopia is a “risky” project that has come to life thanks to investors’ strong confidence and passion.

“We understand that we are creating a product that benefits everyone and meets society’s expectations.”

By Hong Thang

 

 

 

 

 

 

* This is an advertorial

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Oct 10 2013

Powerful typhoon kills 20 in southern China, swipes Hong Kong

powerful typhoon kills 20 in southern china swipes hong kong

 
People watch waves hit the shores as Typhoon Usagi approaches in Shantou, Guangdong province, September 22, 2013. Photo: Reuters

A powerful typhoon hit Hong Kong and the southern China coast on Monday, killing at least 20 people on the mainland, crippling power lines and causing flooding and gale force winds.

Typhoon Usagi, the strongest storm to hit the Western Pacific this year, began pounding the Asian financial center late on Sunday. More than 370 flights were canceled.

The No. 8 signal warning remained in force early on Monday, with financial markets closed for at least part of the morning. The weather observatory said the storm had weakened from “super” typhoon status and that it would consider lowering the warning signal before 10 a.m. (0200 GMT)

China’s National Meteorological Centre issued its highest alert, with more than 80,000 people moved to safety in Fujian province and authorities deploying at least 50,000 disaster-relief workers, state Xinhua news agency reported.

At least 20 people were killed on China’s southern coast, television reports said, including 13 in Shanwei in the eastern fringes of Guangdong province.

The victims included people hit by debris and others who had drowned. One man was killed by a falling window pane.

“It is the strongest typhoon I have ever encountered,” Xinhua quoted Luo Hailing, a gas station attendant in Shanwei, as saying. “So terrible, lucky we made preparations.”

Winds of more than 180 km/hour (110 mph) were recorded in some parts of southern China, toppling trees, cranes and blowing cars off roads in some areas.

The storm had earlier brought down three major power lines in coastal Fujian, cutting off electricity supplies to about 170,000 households, Xinhua reported.

In Guangdong province, a major base for Chinese nuclear power, the Daya Bay nuclear power plant just east of Hong Kong had initiated emergency response schemes, Xinhua said.

Four of the six power-generating units at the plant had been ordered to operate at reduced load.

Airlines canceled flights to cities in southern Guangdong and Fujian, while shipping was suspended between China and Taiwan, state media said.

Despite earlier warnings the typhoon could pose a severe risk to Hong Kong, the city suffered only minimal damage, including toppled trees. There were no fatalities in the city.

The Hong Kong Exchange delayed the start of trading on securities and derivatives markets due to the typhoon.

There will be no trading in the morning if the typhoon signal remains at 8 or higher at 9 a.m Hong Kong time (0100 GMT), with trading suspended for the whole day if storm signal 8 is still up at noon.

Schools, businesses and non-essential government services will also close while storm signal 8 remains hoisted.

Usagi lashed the east and south coasts of Taiwan on Saturday after slamming into the Philippines’ northernmost islands, where it cut communication and power lines and triggered landslides.

http://www.thanhniennews.com/2010/Pages/20130923-Powerful-typhoon-kills-20-in-southern-China.aspx

Oct 10 2013

ADB urges Vietnamese ministries to cooperate on bad debt

adb urges vietnamese ministries to cooperate on bad debt

Banking reforms are difficult and bad debt resolutions can only be achieved with strong coordination among Vietnamese ministries, the Asian Development Bank said in a report released on Wednesday.

The Update to ADB’s flagship annual economic publication, Asian Development Outlook (ADO) 2013, was released on Wednesday and maintains  the forecast for Vietnam’s GDP growth at 5.2 percent for 2013. The update reported that gradual progress in dealing with non-performing loans (NPLs) was expected to slightly lift growth to 5.5 percent next year.

“Economic growth should benefit from some positive steps by the Government of Vietnam to address problems in the banking sector but reforms have generally been fitful and challenging,” ADB said in the report.

The Update praised the formation of the Vietnam Asset Management Company (VAMC), or “bad debt bank”, but noted that the success of VAMC could depend on other supporting legislative and policy reforms not under direct mandate of the central bank. The report also expressed concern over delays to the implementation of improved loan classification and provisioning standards.

“The creation of VAMC is very positive but its success could depend on strengthening the legislative framework for dealing with secured assets, which will require strong inter-ministerial coordination and collaboration,” Tomoyuki Kimura, ADB Country Director for Vietnam, told a press conference while releasing the ADO Update.

“The implementation of improved loan classification and provisioning standards would have reduced risks to the banking system and improved investor sentiment,” he said.

The State Bank of Vietnam has delayed until June 2014 the implementation of a policy directing commercial banks to raise standards on loan classification and provisioning. The new regulation, which was originally slated to take effect in June 2013, would require banks to classify more loans as nonperforming and to increase provisioning. It would also prevent enterprises with loans in arrears from accessing new credit.

Despite rate cuts, credit growth was constrained by banks’ impaired balance sheets, concerns over the financial health of borrowers, a sagging property market, and weak credit demand. The ADO Update suggested progress on bad debt resolutions would support further cuts in interest rates, pumping more money into the production sector.

“Gradual progress in resolving NPLs will improve business sentiment,“ said Kimura. “As this happens, policy stimulus, including the cuts in interest rates this year, could gain traction in boosting credit and GDP growth.”

The Update expects inflation to be 6.5 percent this year, lower than its previous forecast in ADO 2013 as food price inflation has decelerated more quickly than expected. The figure is projected to climb to 7.2 percent in 2014 due to monetary easing and increased liquidity.

Given that the central bank devalued the dong by one percent against the dollar in June, ADB forecasts it will continue to weaken the local currency by a further 2 percent to 3 percent by the end of this year.

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Oct 10 2013

Asset company begins to buy banks’ bad debts

asset company begins to buy banks%e2%80%99 bad debts

Vietnam’s new asset management company has signed its first contract with a bank to buy debts amid rising pressure to accelerate the restructuring of the banking system and revive the economy.

The Vietnam Asset Management Company will buy bad debts with a book value of VND2.5 trillion (US$118 million) from the Vietnam Bank for Agriculture Rural Development, or Agribank — the country’s largest lender by assets — Nguyen Quoc Hung, the company’s vice chairman, said at the signing ceremony in Hanoi.

News website VnExpress quoted Hung as saying that the VAMC would pay VND1.7 trillion for the debt since Agribank had already provisioned nearly VND800 billion against bad debts. The “bad debt bank” will issue special bonds to the lender, who can use them to borrow from the central bank.

The VAMC is also preparing to buy non-performing loans from the Saigon Commercial Bank, Saigon-Hanoi Bank, and Petrolimex Group Bank, Hung said, adding that the company plans to buy at least VND30 trillion worth debts this year.

Prime Minister Nguyen Tan Dung is seeking to resolve almost $5 billion in bad debts that have crimped lending and slowed the economy, which faces its most severe slump in at least a decade.

The nation’s banks have the highest level of bad debts among six Southeast Asian countries covered by Fitch Ratings, which said in a report September 30 that the industry “remains encumbered by substantial bad loans.”

An Agribank spokesperson said the deal helped reduce the lender’s non-performing loans by 7.56 percent. At the end of August the bank’s outstanding loans were worth VND513 trillion.

Agribank had a bad-debts ratio of 6.1 percent as of June 2012, according to the State Bank of Vietnam. Lenders with bad debts of 3 percent or more will be required to sell them to the VAMC.

The company began operations in July with a registered capital of VND500 billion ($24 million) and will issue bonds to around 10 banks in exchange for bad debts, its CEO, Nguyen Huu Thuy, has said.

Banks’ bad debts stood at 7.8 percent of outstanding loans at the end of last year, according to the central bank.

Delayed structural reforms of banks and state companies could undermine investors’ confidence and worsen the nation’s growth prospects, the World Bank warned in a report July.

Despite policy rate cuts, lending growth was constrained by banks’ impaired balance sheets, concerns over the financial health of borrowers, a sagging property market, and weak demand for credit.

In forming an entity to acquire loans from banks, Vietnam is emulating a model tested by neighbors from Malaysia to China, as it seeks to revive investor confidence.

The Ministry of Planning and Investment forecasts the economy to grow by 5.4 percent this year and 5.8 percent next year, which will mark three consecutive years of growth of less than 6 percent.

In a report this week the Asian Development Bank (ADB) said the success of the VAMC could depend on other supporting legislative and policy reforms not under the direct mandate of the central bank.

Inter-ministerial coordination

“Creation of VAMC is very positive but its success could depend on strengthening the legislative framework for dealing with secured assets, which will require strong inter-ministerial coordination and collaboration,” Tomoyuki Kimura, ADB’s Vietnam chief, said.

He said progress in resolving bad debts would improve business sentiments.

As this happens, policy stimulus, including the cuts in interest rates, could “gain traction in boosting credit and GDP growth,” he added.

However, the ADB said it is concerned that its current capitalization may not be sufficient for the VAMC to deal with large amounts of NPL.

“It is unclear if the government will provide additional funding for the asset-management company or recapitalize state-owned commercial banks,” the ADB report said.

The success of the program “also depends on strengthening the Bankruptcy Law and the legal framework for dealing with secured asset transactions, and establishing mechanisms to price and auction bad debts.”

The ADB also expressed concern over delays in improving loan classification and provisioning standards, which “would have reduced risks to the banking system and improved investor sentiment.”

The central bank decided earlier this year to delay until June 2014 the implementation of a policy requiring banks to improve loan classification and provisioning standards.

The new regulation, originally to have taken effect in June, will have more stringent standards for classifying loans as nonperforming and increase provisioning. It will also prevent borrowers with loans in arrears from getting new credit.

Shares in the country’s top lenders have underperformed the benchmark stock index this year.

The Vietnam Joint-Stock Commercial Bank for Industry and Trade, or VietinBank, has lost 13 percent, and the Vietnam Export-Import Commercial Joint-Stock Bank, or Eximbank, has slid 10 percent this year.

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