Showing posts with label bank. Show all posts

Wednesday, February 23, 2011

World Bank finds cause for worry amidst rapid recovery

World Bank finds cause for worry amidst rapid recovery Vietnam’s recovery from the economic crisis has been fast but uneven, and improved governance of state-owned enterprises is needed to ensure strong and sustainable growth, the World Bank says.

The nation’s key economic indicators are expected to recover to “near their pre-crisis trend growth rates” but there are still concerns about a “soft landing” for the country, the bank said in its latest East Asia and Pacific Economic Update released Tuesday.

The current account deficit remains high and there is “persistent pressure” on the local currency as households and firms appear to continue to stockpile foreign currency and gold, it said.

Bankers said this week that speculation of another devaluation is putting pressure on the dong, making businesses more reluctant to sell dollars to banks.

Le Xuan Nghia, deputy director of the National Financial Supervisory Commission, told Reuters the pressure on the dong was increasing as businesses needed to accumulate dollars to settle greenback loans they had taken in earlier months of the year. “But I don't think there should be a devaluation at this point of time, as the pressures are not large enough,” he said.

The World Bank also said Vietnam’s current account deficit remains high and there are concerns about the balance sheet of some of the banks.

“The stock market, after staging a smart recovery in 2009, has slumped again and continues to underperform the broader economy,” the bank said in the report. Vietnam’s benchmark VN-Index has fallen by more than 11 percent so far this year.

The government is trying to “phase out the stimulus package without disrupting the economy”, the bank noted, adding that the economy is on track to achieve the 2010 target of 6.5 percent

State sector

According to the World Bank, state-owned enterprises have played an important role in Vietnam’s progress, but have also become “a source of long term vulnerabilities.”

“While some of the Economic Groups have served the cause of their existence (e.g., Vietnam Posts and Telecommunications Group, Electricity of Vietnam, PetroVietnam, etc.), many have also contributed to magnify the economic instability,” it said.

The bank said in its report that in late 2007 and early 2008, the groups invested heavily in the financial sector and real estate, exacerbating the asset price bubbles. It cited the case of shipbuilder Vinashin, which was on the verge of default, as an example of a state-owned enterprise that failed.

Vinashin piled up to $4.5 billion in debt, leading to a restructuring and a financial investigation in to the firm. Several top managers of the shipbuilder have been arrested for mismanagement.

The World Bank said improved governance of the Economic Groups, along with a new law on public investment and a new framework for public private partnership, will “boost structural reforms in Vietnam and set the foundation for a strong and sustainable growth.”

At the regional level, the bank said the economic recovery in East Asia and the Pacific is robust, but attention must now turn to managing emerging risks.

“Should inflows remain strong, especially against a background of weak global growth, the authorities will be faced with the challenge of balancing the need for large capital inflows – especially foreign direct investment – with ensuring competitiveness, financial sector stability, and low inflation,” said Vikram Nehru, World Bank Chief Economist for the region.

The bank also said in its report that the ongoing relocation by manufacturing firms from higher wage countries in East Asia is beginning to benefit Vietnam, “which with its relatively low wages and easy access to coast is well positioned to absorb such investments.”

World Bank finds cause for worry amidst rapid recovery

The current account deficit remains high and there is “persistent pressure” on the local currency as households and firms appear to continue to stockpile foreign currency and gold, it said.

Bankers said this week that speculation of another devaluation is putting pressure on the dong, making businesses more reluctant to sell dollars to banks.

The World Bank also said Vietnam’s current account deficit remains high and there are concerns about the balance sheet of some of the banks.

The government is trying to “phase out the stimulus package without disrupting the economy”, the bank noted, adding that the economy is on track to achieve the 2010 target of 6.5 percent

State sector

According to the World Bank, state-owned enterprises have played an important role in Vietnam’s progress, but have also become “a source of long term vulnerabilities.”

Vinashin piled up to $4.5 billion in debt, leading to a restructuring and a financial investigation in to the firm. Several top managers of the shipbuilder have been arrested for mismanagement.

At the regional level, the bank said the economic recovery in East Asia and the Pacific is robust, but attention must now turn to managing emerging risks.

Tuesday, February 22, 2011

Dollar rises to record vs dong on unofficial market

HCMC – The U.S. dollar surged to a new record high of VND20,000 per dollar on the unofficial market on Tuesday and as a result businesses are seeking to hold on to the greenback for fear of foreign exchange risk.

The dollar on the underground market on Tuesday afternoon traded at VND19,980 for buying and VND20,020 for selling, up VND50 from the previous day and VND170 from late last week.

Reportedly rumors that the central bank would continue devaluing the Vietnam dong were behind the dollar rally on the unofficial market on Monday. However, the central bank governor, Nguyen Van Giau, on Tuesday affirmed in Saigon Giai Phong newspaper that there would be no more dong devaluation but his message did not appease the market.

The central bank has yet to take a single move to ease the dollar fervor. Commercial banks on Tuesday quoted the dollar selling price at VND19,500 per dollar although no companies could buy the dollar at that price.

Corporate clients must now pay extra fees to buy dollars at banks, virtually appreciating the dollar versus the dong.

There are no official reasons for the dollar jump but market watchers said shaky confidence in the local currency had led to volatility on the foreign exchange market, so any rumors could drive the dong down.

When the dong fell to VND20,000 per dollar, the dollar price in futures contracts on Asian markets on Tuesday afternoon was VND19,950 for one month and VND21,520 for one year.

There are signs that enterprises are holding on to dollar funds on their bank accounts. A source from the State-owned bank BIDV told the Daily BIDV’s dollar purchases had dipped strongly recently, because corporate customers declined to sell.

Individuals are also speculating on the dollar, the source said.

According to a report by the central bank’s HCMC Branch by late August, dollar purchases from enterprises accounted for 40% of the city-based banks’ total.

If enterprises had sold the dollar to banks last week, it would have lost VND500 for each dollar. Therefore, no one wants to sell dollars to banks given the continued price increase of the dollar on the unofficial market, the source said.

Meanwhile, companies having dollar debt are rushing to buy dollars for premature payment.

Outstanding dollar loans rose sharply in the first nine months of this year, and in HCMC alone, dollar credit expanded by a whopping 36.4%.

Dollar supply is in decline while dollar demand is sharply up, leading to a sudden imbalance on the foreign exchange market, the source said. However, the source affirmed BIDV could meet all legitimate corporate needs for dollars.

Meanwhile, the general director of a joint-stock bank told the Daily that dollar funds were ample but prohibitively high prices really mattered.

Unusual cash stocks pressuring Vietnam's dong: WB

An unusually large amount of money held outside Vietnam's official foreign exchange reserves is continuing to pressure the dong while most other regional currencies strengthen, the World Bank said Tuesday.

"While many currencies are experiencing appreciation of their exchange rate, in the case of Vietnam the reverse is true," the World Bank's lead economist in Vietnam, Deepak Mishra, told reporters.

Vietnam in August devalued the dong for the third time since late last year, saying it was trying to control the trade deficit.

The official exchange rate is at VND18,932 per US dollar, down from VND17,034 or more than 11 percent since late November when the series of devaluations began.

In contrast, regional exchange rates are 10-15 percent stronger than before the 2008 global financial crisis, the Bank said Tuesday in its latest East Asia and Pacific Economic Update.

It said East Asia's success in leading the global recovery has attracted a surge of capital that has inflated the currencies, spelling a risk to exports and future growth.

Vietnam's recovery has also been rapid, but uneven, the Bank said. It noted "the current account deficit remains high and households and firms appear to continue to stockpile foreign currency and gold, putting persistent pressure on the local currency."

Mishra, in a briefing for reporters, said Vietnam has enough foreign exchange to pay for its current account deficit but "the real issue" is the amount of foreign exchange held in such forms as savings that are not with the State Bank of Vietnam.

This figure amounts to about 12 percent of gross domestic product (GDP), he said, adding: "That's the reason why there's pressure on the exchange rate."

But he said it is not easy to say the dong is necessarily overvalued.

In its latest report, the Bank estimated Vietnam's full-year real GDP growth at 6.5 percent, inflation at 8.0 percent, and a current account deficit of US$9.3 billion.

Unusual cash stocks pressuring Vietnam's dong: WB