Samson: Moody’s: Vietnam’s state-owned and private-sector banks show diverging capital profiles
30th July, 2018
The profitability of Vietnamese banks is strengthening as robust economic growth fuels credit demand and supports an improvement in asset quality, but challenges are also apparent, Moody’s Investors Service says in a recent report.
“Credit growth is outpacing internal capital generation, weighing on capital ratios, and the State-owned banks – unlike their private-sector counterparts – have been slow in raising external capital even as their capital ratios slide,” says Rebaca Tan, a Moody’s analyst.
“Against such a backdrop, a continued deterioration of capitalisation will weaken the competitiveness of the State-owned banks and ultimately their credit profiles,” says Tan.
Under the report ‘Banks – Việt Nam: Deteriorating capitalisation will weaken state-owned lenders’ credit profiles’, Moody’s said that the average return on tangible assets (ROTA) at the rated Vietnamese banks rose to 0.97 per cent in 2017 from 0.70 per cent in 2016, while their asset-weighted average ratio of problem loans declined to 4.7 per cent at the end of 2017 from 5.9 per cent a year earlier.
Looking ahead, Moody’s expects profitability and asset quality metrics to further improve in 2018-19, although rapid loan growth – at 21 per cent in 2017 – could mask asset risks.
Specifically, the banks have increased their lending to retail and small- and medium-sized enterprises (SMEs), a positive trend for their margins due to the relatively high rates for such loans. At the same time, the shift away from lending to State-owned enterprises (SOEs) is positive because many SOEs remain in poor financial health.
“However, internal capital generation will be insufficient to cover this rapid pace of loan growth, and the rated Vietnamese banks will need an additional $7 – $9 billion in capital to achieve Tier 1 capital ratios of 11 per cent in 2018 and 2019, while sustaining current loan growth rates,” Moody’s said.
Without external capital, Moody’s estimates that the Tier 1 capital ratio of the rated private sector banks will drop to 8.0 per cent by the end of 2019 from 9.4 per cent at the end of 2017, while that of the rated State-owned banks will drop to 6.1 per cent from 6.9 per cent over the same period.
These concerns are somewhat mitigated for the private sector banks, which have been actively raising equity capital from the market through a series of successful new share offerings since 2017 that have helped increase capital ratios.
By contrast, state-owned banks have been slow in raising external capital even as their capital ratios slide – primarily because the government prefers strategic investors. Their asset-weighted average TCE ratio declined to 6.89 per cent at the end of 2017 from 6.92 per cent a year earlier, and could continue to weaken if the banks fail to raise capital.
With their larger capital buffers, the private sector banks will be able to increase investments in business growth, which will lead to stronger profitability and internal capital generation.
Conversely, Moody’s views the state-owned banks as caught in a cycle, with capital shortfalls impeding growth, resulting in continuously inferior internal capital generation and ultimately weaker competitiveness. As a result, Moody’s expects their credit profiles will fall behind those of private sector banks. LINK
TIM: i beleive its time for an increase in their currency wouldn’t you say?
Samson: Vietnam : Central bank may sell $4-10b to stabilise forex market: HSC
31st July, 2018
The State Bank of Việt Nam (SBV) could sell from US$4-10 billion to commercial banks this year to stabilise the foreign exchange market if necessary, HCM City Securities Corporation (HSC) forecast.
According to HSC’s latest report, after selling $2 billion in recent weeks, the SBV was closely monitoring the market and was ready to intervene again.
HSC analysts believed that the SBV would pursue a flexible policy to stop the rising US dollar/đồng exchange rate rather than reducing the rate.
HSC also kept its previous forecast unchanged that the US dollar would strengthen by 3 per cent against the đồng this year if the ICE US dollar index fluctuated at around 94-97 points and the US dollar/yuan exchange rate was set at around 6.8-7 points from now to the end of this year.
HSC noted that it would revise the forecast if one of the two above assumptions did not materialise. However, it believed that these assumptions were reasonable as the US president wanted a weak dollar and China was also aware of the consequences if the dollar/yuan exchange rate exceeded the threshold of 7 points.
The daily reference exchange rate was adjusted up again Tuesday morning, rising VNĐ10 from the previous day to VNĐ22,669 per US dollar.
With the current trading band of +/- 3 per cent, the ceiling rate applied to commercial banks during the day is VNĐ23,348 per US dollar and the floor rate VNĐ21,990 per US dollar.
The opening hour rates at commercial banks also rose compared to yesterday.
Vietcombank raised both rates by VNĐ20, listing the buying rate at VNĐ23,220 and the selling rate at VNĐ23,300.
The rates at BIDV went up VNĐ35 to VNĐ23,240 (buying) and VNĐ23,320 (selling).
At Techcombank, the greenback is being bought for VNĐ23,220 and sold at VNĐ23,320, both up VNĐ30 from yesterday. LINK
Samson: Vietnam : MA activities expected to reach record levels in 2018
1st August, 2018
Việt Nam has become an attractive destination for many foreign investors largely due to the country’s friendly policies encouraging FDI, its political stability and strong economy, the latest report of US-based John Lang LaSalle (JLL) said.
Foreign direct investment (FDI) disbursements rose 8.4 per cent year-on-year to US$8.37 billion in the first six months of 2018, according to figures from the Foreign Investment Agency.
Việt Nam has been taking initiatives to improve its transparency and the country remains one of the most favorable destinations for foreign investment in South East Asia, according to JLL’s Global Real Estate Transparency Index.
In the first half of this year, the real estate market continued to appeal to foreign investors and witnessed high-value merger and acquisition (M&A) deals in a variety of sectors such as residential, commercial and industrial.
Joint ventures have become popular among foreign developers who have strong financial capacity and a track record of joining forces with local developers who own land and have strong connections with the local community.
Foreign investors are from many countries, including Japan, Korea and Singapore, with an increasing number of groups from mainland China.
More local investors are also actively seeking real estate deals alongside foreign investors, the JLL report said.
The year started off with the acquisition of the Sun Wah office tower by Nomura Real Estate Development, while the residential sector continued to be buoyant with five major M&A transactions within the first six months.
Investment deals in the first half this year were diversified with a good variety of asset and property types transacted.
As for the market as a whole, JLL experts expect continued growth through most asset types.
The hospitality sector has been of interest over the past year, with new funds with foreign capital now specifically targeting this sector.
“We expect this trend will continue in hospitality and other growing sectors such as industry and education,” said Khánh Nguyễn, associate director for capital markets at JLL Việt Nam.
“We expect foreign investors to continue showing keen interest and strong commitment in the Vietnamese real estate market. The market is still growing,” she added.
Both incumbent and incoming foreign investors are actively looking for “clean” and “clear” projects that can meet their required returns and conditions.
Due to the strong focus on Viet Nam from regional investors, M&A activities are expected to reach new record levels this year. LINK
Dragon fruit is one of many Vietnamese products being exported to the US
Samson: US continues to be key export market for Việt Nam
30th July, 2018
The United States has maintained its leading position as Việt Nam’s largest export market having spent US$21.6 billion on Vietnamese products in the first half of the year, accounting for 19 per cent of the country’s total export value as of July 15.
However, the US has strict standards that require Vietnamese export businesses to improve their capacity and take the initiative to cooperate and build new supply chains.
Trần Quốc Mạnh, chairman of the Saigon Trade and Production Development Corporation (Sadaco), said the US was home to the highest market mechanism in the world. Its trade remedies such as anti-dumping were being applied strictly so that Vietnamese businesses must grow to promote their products in the market.
“Wooden furniture is one of the five items from Vietnam that have the largest export turnover in the US. Businesses wishing to export to this market must ensure both productivity and quality,” said Mạnh.
In addition, US orders for furniture are usually large with up to several hundred containers per month. Therefore, Vietnamese enterprises need to expand the scale and automate the production line to ensure the quality and quantity of supply, said Mạnh.
According to Deputy Minister of Industry and Trade Đỗ Thắng Hải, the new changes in the US trade policy would have a major impact on Việt Nam’s export of many key products, so it’s not an easy task for Vietnamese businesses to maintain the current export turnover or boost export growth in the US.
Hải said the Ministry of Industry and Trade (MoIT) encouraged Vietnamese enterprises to jointly build up a production and supply chain for export goods to the US market, thereby bringing more added value for Vietnamese goods.
The ministry was ready to assist the businesses in this process, said Hải.
James W. Fatheree, former vice president, Asia and acting head of Asia at the U.S. Chamber of Commerce, appreciated the cooperation between Việt Nam and the US. He said the US business community was looking at the Vietnamese market due to the country’s population, growth rate and economic reforms.
US businesses highly appreciated the improvements to the business investment environment in Việt Nam, where political mechanism reforms and human resources as well as procedural conditions were gradually improving. The changes were a good basis for the two sides to complement and create conditions to increase cooperation.
According to Nguyễn Thắng Vượng, head of the Department of European and American Markets under the Ministry of Industry and Trade, since the Vietnam-US Bilateral Trade Agreement came into force, two-way trade between the countries had continued to grow highly, up 47 times from $220 million in 1994 to $50.8 billion in 2017.
Việt Nam is currently the 12th largest exporter of goods to the US and the 27th largest importer.
Export turnover of the top 10 commodities to the US in 2017 was approximately $34 billion, accounting for over 80 per cent of total export value. The textile and garment sector continued to lead with $12.28 billion, accounting for 29.51 per cent of total export value to the US. It was followed by footwear with $5.11 billion, phones and components at $3.7 billion, and computers, electronic products and components, wood and wooden products at $3.26 billion.
Trade experts said that the US would remain a key export market for Việt Nam in the near future, but some strict regulations and standards for imported products would raise production costs. However, in the long run this would promote sustainable development if businesses were adaptable and implementing food safety regulations.
A shift to less stringent markets was only a temporary solution, not sustainable and long term, especially for businesses that had established a foothold in the US market.
Experts said that in order to reduce difficulties for enterprises, the Government should issue guidelines to minimise administrative costs and support enterprises through trade promotions.
The National Trade Promotion Programme should identify those who were capable of adapting to the market, maintaining partnerships, being socially and environmentally responsible, building branding and sustainable development.
In addition, changes to US trade policies needed to be quickly understood in order to develop appropriate solutions to assist enterprises as they shift their production and business strategies in order to maintain their export advantage in the market.
Việt Nam must also step up the process of building a fair and transparent legal system. This was a key factor to attracting foreign investment and creating favourable conditions for domestic enterprises to develop. LINK