Large banks focus on corporate bonds

HA NOI (VNS)— The total value of corporate bonds sold during the first six months of this year has reached VND15 trillion (US$707.5 million), equivalent to 88 per cent of last year’s total, according to a report from the Bank for Investment and Development of Viet Nam (BIDV).

Property developer VIDP Group issued VND7.6 trillion ($358.4 million) in corporate bonds, mineral giant Vinacomin raised VND2.5 trillion ($117.9 million) and HCM City Infrastructure Investment (CII) issued VND1 trillion ($47.1 million) worth of bonds.

The BIDV report recorded small scale issuance of under VND100 billion ($4.7 million) from other companies. “Most of the bonds belonged to real estate firms,” the report said.

Corporate bonds were favoured by commercial banks. BIDV and Techcombank bought VND500 billion ($23.8 million) and VND3 trillion ($141.5 million) worth of bonds in VIDP Group, while all the bonds issued by CII, totalling VND1 trillion ($47.6 million), were sold to Vietcombank (VCB).

“Attractive yields have brought banks with large cash reserves to corporate bonds,” the report said. “Despite the gloomy economic situation that made it for bond issuance more difficult, large corporations are still alluring to investors.”

The supply of corporate bonds is expected to continue to rise as companies take advantage of low interest rates to raise capital. “Along with increasing supply, demand will be large, especially for bonds from reputable businesses,” the report said.

Bond yields for three to five-year terms range from 13-15 per cent.

Meanwhile, Government bonds were less attractive, according to Viet Dragon Securities Co. Government bonds during the first six months yielded about 6-9 per cent. Declining yields discouraged investors, especially banks.

In June and the beginning of this month, foreign investors sold Government bonds with a net value of VND7.2 trillion ($339.6 million). — VNS


Monetary and fiscal policies go their separate ways

Vietnam has been mostly relying on the monetary policies in regulating the national economy, while the fiscal policy has been ignored. (VIETNAMNET)

According to the Governor of the State Bank Nguyen Van Binh, by the end of May 2013, the outstanding loans had increased very slightly by 2.98 percent in comparison with the end of 2012. Of this, the dong outstanding loans had increased by 5.48 percent and foreign currency loans decreased by 8.41 percent.

As such, the lending interest rates have reduced by 2-4 percent in comparison with the beginning of the year, while the new loans’ interest rates are now equal to the rates applied in 2005-2006 and even lower than that in 2007. However, despite the sharp falls, the credit growth rate remains very modest. While commercial banks have continuously launched low-cost credit packages, businesses still keep silent and don’t intend to borrow money for the investment.

Bankers have affirmed that they have slashed the lending interest rates to the lowest possible levels.

Meanwhile, Binh said that the margin between the deposit and the lending interest rates has decreased to 3.03 percent, and if deducing the provisions against risks, the gap would be 1,93 percent only, much lower than the 2.33 percent seen at the end of 2012.

Binh said this was one of the reasons which led to the sharp falls of the credit institutions’ profits in 2012 and the first months of 2013.

Experts have been pointed out that the monetary policy has been abused, while the fiscal policy has not been used to stimulate the national economy. In other words, the monetary and fiscal policies have been going their separate ways, while they should strive to one thing.

Dr. Le Xuan Nghia, Head of the BDI, a business development research institute, said he and his colleagues have carried out a business survey and found out that businesses nowadays only strive to short term business plans, while they do not think of long term business strategies.

In 2009, when the government launched the interest rate subsidy package, under which the lending interest rate was lowered to 6.5 percent per annum, a lot of businesses believed that the government would stabilize the interest rate for a long term. With the confidence, they injected their money in developing their business and expanding the production.

However, just after some disbursement fits, the interest rate suddenly soared to 20 percent per annum. A lot of businesses merely got bankrupt, while their new production lines were left unused, because they could not bear such the sky high interest rates.

Businesses, which have lost confidence on the interest rate policy, have decided that they should strive for short term profits only.

A good monetary policy should not only try to increase the money supply to pave the way for the interest rates to go down. More importantly, it should strive to a stable monetary policy,” Nghia commented.

Only when the inflation rate, exchange rate and interest rate are stabilized, will businesses be able to think of their long term business plans and feel secure to make investment.

“No one can do business well, if the inflation rate goes up to 15-20 percent and down to 5-6 percent so regularly,” Nghia maintained.

He has blamed this on the abuse of the monetary policy in dealing with the problems, while the fiscal policy has been the“outsider.”

Vietnam greedy for too many different goals in setting up monetary policy

The Vietnamese monetary policy always aims at many different targets, which, in some cases, are contradictory. As a result, the policy cannot bring the desired effects. (VIETNAMNET)

Simplifying the monetary policy’s targets

The experts from the International Monetary Fund (IMF), who have been keeping a close watch over the Vietnamese monetary policy over the last many years, have commented that Vietnam always pursues too many goals with its monetary policy, from the economic growth, exchange rate stabilization and inflation congestion. Meanwhile, these are the contradictory things which should be approached through different ways.

The loosened monetary policy, for example, which expands credit rapidly, would help stimulate the national economy, but it would also cause a side effect– the high inflation.

Therefore, the IMF’s experts believe that it would be better to simplify the monetary policy’s targets. The State Bank, for example, has recently targeted a reasonable goal of controlling the inflation. The low inflation rates would help stabilize the national economy, thus bringing benefits to businesses.

A reasonable monetary policy would help create a good business environment in which the market performance is predictable for businesses. This would create favorable conditions for businesses to draw up their business plan, including the investment capital arrangement and labor recruitment.

Meanwhile, the low inflation would also benefit the poor and the old people who live on the stable and limited incomes.


IMF has also suggested that the dong/dollar exchange rate needs to be regulated in a reasonable way, to serve the economy which has been more deeply integrating into the world and has been heavily relying on foreign investment.

The State Bank of Vietnam has been advised to gradually remove the non-market measures to control the market, including the ceiling interest rate and targeted growth.

 The side effects of the monetary policy loosening warned

The government and the State Bank of Vietnam have been advised to maintain and to pursue the policy on stabilizing the macro economy, making the banking system healthy and perfecting the legal framework for the monetary policy implementation.

The State Bank has done many things over the last two years when dealing with the problems in the national economy and the banking system. The inflation has been decreasing, while the banking system and the foreign currency market have been stabilized, and the foreign currency reserves have increased significantly.

However, problems still exist which require the government to strengthen the consolidation of the banking system, and to restructure the state owned enterprises.

The two goals prove to have close relations, since state owned enterprises play a very important role in the Vietnam’s national economy. They are also the big clients of banks and need to take partial responsibility for the bad debts

Vietnam, after a long period of applying an easy credit policy which has led to the high inflation and the credit bubble busting, has taken important steps since 2011 to congest the inflation and stabilize the finance market in an effort to avoid the banking system crisis boom.

The widened gap between the VND and dollar interest rate has helped restore the confidence in the local currency, thus helping stabilize the exchange rate and increase the foreign currency reserves.

Tools to recalibrate economy

Work is underway to lift the bad debt cloud from the economy.

The Vietnam Asset Management Company (VAMC), the main weapon to attack debts, is in place with VND500 billion ($23.8 million) in chartered capital at its disposal, the VAMC envisages tackling nearly VND100 trillion ($4.7 billion) in bad debts. Through issuing bonds for debt purchases, the VAMC seeks to address bad debt dilemma without using the state budget.

Senior financial expert Dr. Nguyen Tri Hieu, however, warned that to tackle such a huge bad debt amount, the VAMC would need to use big financial leveraging which was risky.

“Assuming that the VAMC bought VND50 trillion ($2.38 billion) worth of bad debts, it would need to pay commercial banks special bonds of the same value. Banks then take these bonds to the State Bank asking for refinancing with 50 per cent discount of the bond value to get back VND25 trillion ($1.2 billion). This means the VAMC could have around $1.2 billion in total asset value versus $23.8 million in chartered capital. VAMC’s financial leverage rate by that time will be 50/1, too perilous for a financial institution,” Hieu said.

In this case, VAMC’s chartered capital would even be contracted if one commercial bank dropped in its debt payment obligation.

In this respect, a commercial bank executive assumed VAMC going bankrupt was unlikely, but this would make banks think twice before‘selling’ their bad debts for bonds.

At the Vietnam Business Forum in early June 2013, VBF co-chair Alain Cany said VAMC’s setup was a positive signal, but settling banks’ bad debts could not only resort to a single solution.

Economic experts claimed the VAMC could only tackle one-third of the total bad debts, while the government was set to fully deal with current bad debts by 2015.

Under the premier-approved project on tackling bad debts, not only banks, all ministries and government agencies must get involved in the push. The premier also required credit entities to collaborate with VAMC in addressing bad debts.

In addition, credit organisations and borrowers should incur major responsibilities for the arising bad debts and sharing losses in dealing with bad debts.

Meanwhile, state budget shall be on the hook for bad debts stemming from lending to priority subjects or to those under government assignments.

The government reportedly would resort to using debt instruments in dealing with bad debts. The prime minister has assigned the Ministry of Finance to map out plans on debt instrument issuances to help the government effectively tackle various debt issues.

Forex market to debut this year

Myanmar’s first foreign currency trading market is set to be launched this fiscal year, the Central Bank of Myanmar announced.

“We plan to launch forex trading this fiscal year after domestic banks learn how to operate such a market,” an official from the bank’s foreign exchange management department said last week.

Currently, exchange rates are set on weekday mornings according to the reference rate and daily auction of the central bank. Once inter-bank trading begins, banks will be able to negotiate the rate with each other, which could see it changing in minutes or seconds.

“When the market is no longer regulated … it becomes competitive and tends to stabilise,” the central bank spokesman said. The new system will also give foreign businesspeople “more confidence in the Myanmar currency market” because the central bank will only intervene “gently” to maintain a stable and strong market, he added.

Executives at Myanmar banks began receiving training in foreign exchange trading last month from Japan’s Sumitomo Mitsui bank, with about 90 participating in the first training session in the last week of May. The ongoing training sessions are organised by the Japan International Cooperation Agency.

A code of conduct for currency trading was also drafted last November by the central bank when the Yangon Foreign Exchange Market Committee was established. The committee represents the 16 domestic banks authorised to deal in foreign currencies.

U Pe Myint, managing director of Cooperative Bank, said large domestic banks – such as Kanbawza, Ayeyarwady, Asia Green Development and his own – will be the first to trade in a forex market, with smaller banks following later.

Kanbawza Bank general manager U Kyaw Lin Htut said staff will be sent to other countries for training and monetary experts will be brought to Myanmar to provide training. He expressed optimism about the impact of a liberalised foreign-exchange market. “We won’t need to go to the central bank for the daily auction anymore. We can define the market ourselves and I believe it will become more energetic.”

U Kyaw Lin Htut added that some rules and regulation for a forex market are still being drafted. For example, it is still unclear whether the market will operate electronically, as in international practice, or over phone lines.

In the week to June 4, the daily reference rate of the Central Bank was K945 to the US dollar, down slightly from K949 to the dollar for the week to May 24. On the black market the kyat had been trading at 1000 to the dollar late last month in anticipation of further declines, but has shifted closer to the central bank’s rate since then.

The central bank spokesperson said the kyat had stabilised after its swift decline last month because demand for US dollars had cooled.

He declined to respond to speculation that the central bank had intervened to support the kyat, saying only that it was “following the market”.

He declined as well to say whether further declines were possible.

“We cannot forecast the future exchange rate – that depends on many factors – but our duty is to maintain a rate that does not have too much impact on the market.”

y Aye Thida Kyaw   |   Monday, 10 June 2013

Experts urge central bank rethink as kyat slides

Monetary experts urged Myanmar’s central bank to set an exchange rate that balances the need to generate exports and maintain affordable imports, as the national currency continued its month-long slide against the US dollar.

The Central Bank of Myanmar’s daily exchange rate, which is determined through foreign currency auctions with domestic banks, was K946 to the dollar on May 23, while official money changers were buying dollars for K945 and informal changers were offering K953-955.

On May 25, however, the kyat fell to 1000 for one dollar on the black market.

In official trade the kyat fell 2.3 percent against the dollar in the week to May 23, from 925 on May 17.

Matt Davies, deputy division chief for the International Monetary Fund’s Asia and Pacific department, told The Myanmar Times that exchange rate fluctuations have the potential to greatly impact on the nation’s trade sector.

He said on the sidelines of an IMF press conference that Myanmar needs to find a balance between allowing the US dollar to appreciate and making the nation’s exports cheaper abroad, while keeping the price of imports affordable as the country grows.

Myanmar has made great strides in liberalising its foreign exchange regime since President U Thein Sein took office, including allowing new private banks to open, giving permission for banks to open official money exchange counters, installing automatic teller machines and legalising remittances from abroad, Mr Davies said.

In April 2012, the central bank began a managed float of the kyat by holding daily currency auctions. The rate set by the bank is then used as a benchmark for private banks and private exchange counters, which are allowed to change money within 0.8pc of the central bank’s rate.

Mr Davies said the central bank is working to minimise exchange rate fluctuations without targeting a specific rate. However, it has also supplemented its foreign currency reserves by buying dollars and other foreign currencies, which is weakening the kyat.

He advised the central bank to build up its reserves so it has a buffer against external shocks.

Equipping the central bank with the tools to conduct domestic monetary policy is important for delivering the stability necessary for sustained economic growth, he added.

Mr Davies said inflation remains moderate at present but there are pressures, including from money growth, real estate prices and wage increases.

An official from the central bank’s foreign exchange management department said the dollar is appreciating against the kyat because private banks are bidding higher at the daily currency auctions.

“We can’t say the appreciation is too great … there are many factors that are coinciding to form a trend,” he said.

When the central bank started the managed float of the kyat, the dollar bought K818 but in the past 13 months it has appreciated by more than 15pc.

The official said the daily rate has seen changes up to a maximum of 1pc, adding that fluctuations would be larger if the central bank did not hold the auctions.

“This is not just a problem in Myanmar; we also have to deal with changes in the international economy. But we have to avoid fuelling an inflationary situation,” he said.

Even though the central bank has not been made independent from the Ministry of Finance and Revenue – and will not be until after the Central Bank Law is passed by parliament and signed into law by the president – it can act to change monetary policy, he said.

A finance officer at a joint-venture between foreign and local partners said the swift fluctuations created occasional problems with customers.

“We have to negotiate with the Internal Revenue Department and customers when the exchange rate changes too much in a month,” she said.

She added that the variance between the rates offered at official money exchange counters and in the informal market – as much as K10 to the dollar on May 22 – also drew complaints from customers.

Economist U Khine Htun said the dollar is strengthening against the Japanese yen, the British pound, the Australian dollar and the kyat.

He added that another factor causing the dollar to appreciate is the start, in March, of the withdrawal of Foreign Exchange Certificates (FEC) from the market.

He said businesspeople only want dollars now, adding that traders say they hope to see a stable exchange rate of about K1000.

Myanmar must not allow imports to become too expensive because there is a huge need to import materials to build infrastructure projects such as special economic zones in Yangon, Dawei and Kyaukpyu, U Khine Htun stressed.

The appreciation of the dollar benefits exporters – chiefly those selling natural gas, agricultural goods and fisheries products – but hurts importers of fertiliser, cement, diesel and the cheapest cooking oils.

“It encourages the export first-policy, but the immediate fluctuations are harming the whole economy and destabilising the market,” U Khine Htun warned.

“The central bank has not intervened effectively in the monetary market yet. It is acting more like a referee as currencies are traded by banks.”

By Aye Thida Kyaw│24 May 2013│The Myanmar Times

Laos will issue bonds in Thai market for first time this week

The Lao government will raise funds through the Thai capital market for the first time by issuing 1.5 billion baht worth of bonds to institutional investors on Thursday. The three-year bonds will carry a coupon rate of 4.5%.

Thailand is the most advanced capital market in the Mekong region and uses this strength to foster development of neighbouring capital markets.

Niwat Kanjanaphoomin, president of the Thai Bond Market Association, believes Laos will be able to attract foreign investors to its government bonds to be issued in the Thai capital market.

Bonds issued by foreigners to raise funds in the Thai capital market are typically required to have a credit rating, but Thailand’s Finance Ministry is making an exception in this case.

“The first lot of Laotian government bonds is small, but it’s good to test the market and build up investor awareness for a potentially larger bond issue in the Thai market or even the Laotian bond market later on,” said Mr Niwat.

Laos has appointed Twin Pine Consulting Co Ltd (TPC), a Thai advisory firm, to assist with the bond issue.

TPC is a regional advisory firm tailored to Southeast Asia, specialising in energy and agriculture.

The company was founded by Chiridacha Phungsunthorn, who has long experience in regional law, and Adisorn Vasukhup Singhsacha, a financial adviser with more than a decade in international banking.

Mr Chiridacha said TPC has other deals with Greater Mekong Subregion governments in the pipeline that could raise funds via the Thai bond and stock markets.

TPC works with LS Horizon Ltd, also founded by Mr Chiridacha and a pioneering regional law firm, when engaging with clients across the Mekong region.

LS Horizon has offices in Thailand, Laos, Myanmar and Singapore, with further expansion planned.

Successful projects done by LS Horizon in the past include advising on EDL-Generation Plc’s listing on the Lao Securities Exchange.

Mr Adisorn said the stock market in Laos opened two years ago and has two listed companies so far. Myanmar is also looking to launch its own stock exchange in 2015, while Cambodia has similar ambitions.

“Thais must first have a more open view towards their neighbours and an eagerness to grow, as we share a similar culture with other countries in Southeast Asia,” he said.

He said potential deals advised by TPC at present include providing advisory services to leading Myanmar companies in raising funds through the capital markets of other Asean countries, a real estate project in the heart of Yangon and a property fund for investment in Thailand.

24 May 2013│Bangkok Post

Mr Chiridacha said investment openings in Laos, Myanmar and Cambodia are promising, but the opportunities in Malaysia and Vietnam are slim due to differences in the legal and business cultures.

Indonesia is more intriguing than Malaysia and Vietnam, with energy and consumption-related businesses especially attractive, he said.