Banks begin to cut back interest rates

Photo: Tuoi Tre

Many commercial banks Friday started to cut their deposit interest rates by 0.2 percentage points to 11 percent per year in compliance with a recent agreement.

The agreement, made between the Viet Nam Banks Association (VNBA) and the State Bank of Vietnam, asks banks to cut their interest rates to no more than 11 percent, instead of 11.2 percent.

The move is designed to urge banks to cut capital input costs and help enterprises access more credit.

Asia Commercial Bank (ACB) is the first bank to apply the new interest rate on 36 month deposits. Interest rates for one week to 24 month deposits range from 9.9 to 10.88 percent per year.

But ACB will give depositors cash as a bonus, which is equal to 0.15 percent of their primary deposit.

Earlier this week, Techcombank, DaiA Bank, HDBank also cut their deposit interests rates to below 11.2 percent.

As inflation pressures continue to grow during the final months of the year interest rate cuts would be executed with prudence with respect to the market’s behavior and the depositor’s expectations, said VNBA.

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Ford to sell most of stake in Japan's Mazda: reports

TOKYO - US carmaker Ford Motor has decided to sell the bulk of its 11 percent stake in Japan's Mazda Motor and invest the money instead in emerging markets, reports said Saturday.

Ford, which has been the top shareholder in the Hiroshima-based automaker since 1979, plans to slash its current equity stake of 11 percent to three percent or less, the Nikkei business daily said without naming its sources.

At times Ford has owned more than a third of Mazda, but started cutting its stake in 2008 in the wake of the global financial crisis.

The two firms have reached a basic agreement on the deal, Nikkei said. The Mazda shares held by Ford are worth a total of 42 billion yen (US$515 million) based on Friday's closing price on the Tokyo stock market.

Jiji Press said Ford would use the money it gains through the sale to invest in emerging countries with high growth potential. The two companies are expected to make a formal decision in November, Jiji said.

Mazda, Japan's fifth largest automaker, declined to comment on the reports, saying they were "the result of speculation" by journalists.

"Mazda and Ford continue to enjoy a close strategic partnership and there is no change to this relationship. As before, we continue to cooperate in areas of mutual benefit. We do not comment on speculation," it said in a statement.

Mazda spokesman Kotaro Minagawa said the company would neither confirm nor deny the reports.

The Nikkei said the shares are likely to go to Mazda's main creditor Sumitomo Mitsui Banking Corp., as well as trading house Sumitomo Corp. and other Sumitomo group firms.

Once the sale is completed Ford would be no longer be Mazda's top shareholder, it said.

The Wall Street Journal reported Ford's chief financial officer said the US and Japanese automakers would continue to work together but intend to compete separately in China, the world's largest car market.

Lewis Booth, Ford's executive vice president and chief financial officer, said in a recent interview with the paper that Ford has "had a 30-something-year history of working with Mazda and it's going to continue".

But Booth confirmed that Ford was seeking to dissolve its three-way venture in China between Ford, Mazda and Chongqing Changan Automobile Co., with Mazda and Ford instead having two separate tie-ups with the Chinese company.

"We work on projects that make sense to the two of us and if they don't make sense to the two of us, we don't work on them," Booth reportedly said of Ford's relationship with Mazda.

"With the growth in China and the investment that each of us are going to make in China, we decided to split the joint venture."

Ford became Mazda's top shareholder in 1979 as it purchased 25 percent of its outstanding shares. It raised the stake to 33.4 percent in 1996 to gain management control over the struggling Japanese company.

Ford has since reduced its stake to 11 percent due to the US carmaker's need to raise badly needed cash during the recession and due to Mazda's issuance of new shares.

US and Japanese automakers started alliances in the 1970s but many of them have recently been unwound.

General Motors, in the face of heavy losses, has sold its stakes in Japanese truck maker Isuzu Motors, car maker Suzuki and Subaru vehicles maker Fuji Heavy Industries. Suzuki is now allied with Volkswagen of Germany.

Toyota Motor has closed a plant in California that it jointly owned with GM.

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ADB urges multi-national effort against “Dollarisation”

The Asian Development Bank (ADB) has pointed out a need for regional
cooperation in monetary and financial issues, particularly to deal with
the issues of multiple currencies within domestic economies.

The region’s biggest development bank made the statement in the latest study, which was published on October 15.

The study, Dealing with Multiple Currencies in Transitional
Economies: the Scope for Cooperation in Cambodia , Laos , and
Vietnam , is a pioneering work on the multiple-currency phenomenon with
important recommendations for promoting regional monetary and financial
cooperation.

In the three target countries, other
countries’ currencies, particulary the US dollar, are found in broad
use. The share of foreign currencies ranges from around 20 percent of
all currency in circulation in Vietnam , about 50 percent in Laos ,
and more than 90 percent in Cambodia .

In this
regard, the ADB Country Director for Vietnam , Ayumi Konishi,
recognised progress made by the country in de-dollarisation.

“Yet, authorities, especially the State Bank of Vietnam , are
fully aware that administrative measures alone cannot be effective”,
said the ADB residential chief.

He explained that
in order to de-dollarise the Vietnamese economy, it is essential to
enhance people’s confidence in Vietnamese dong through sustainable and
high economic growth, stabilisation of the foreign exchange rate,
reforms in monetary policies, and strengthening of the capacity of
financial institutions.

Jayant Menon, Principal
Economist in ADB’s Office of Regional Economic Integration, a co-editor
of the study, remarked “Dollarisation blunts the tools for macroeconomic
stabilisation, especially monetary and exchange rate policy, that a
country like Vietnam needs in order to tackle a variety of economic
and developmental challenges, such as rising inflation”.

He warned Vietnam , where the US dollar makes up 20 percent of the
total money circulation, for its partial dollarisation which may lead
to some limitations especially in deploying policies for macroeconomic
stabilisation.

Solutions such as official
dollarisation, compulsory de-dollarisation and mono currency are all
infeasible, said the ADB expert.

Experts
recommended three solutions, including the short-term solution which
highlights strengthening the momentum for depositing savings in the
Vietnamese dong instead of the US dollar or gold. They also urged banks
to encourage long-term saving deposits in the Vietnamese dong and reduce
sudden changes or any instability in the short-term saving deposit
interest rates.

Their recommendations for a
medium-term solution included a currency-bound mechanism and reserving
the right to mould or print currency.

For a
long-term solution, experts recommended the economy be prepared for the
de-dollarisation process, building financial institutions and speeding
up reforms in the State-owned enterprise sector for sustainable
development.

The other co-editor of the study,
Giovanni Capannelli, Principal Economist in the ADB Institute, urged
monetary authorities of Cambodia , Laos and Vietnam to share
information and experiences in order to find a solution to the
dollarisation issue.

“The three countries have a
lot to gain from closer cooperation, both among themselves and with the
rest of the members of the Association of Southeast Asian Nations”, said
the ADB expert.

ADB, based in Manila , is
dedicated to reducing poverty in Asia and the Pacific through
inclusive economic growth, environmentally sustainable growth, and
regional integration.

In 2009, it approved a total
of 16.1 billion USD in financing operations through loans, grants,
guarantees, a trade finance facilitation programme, equity investments,
and technical assistance projects.

Vietnam will host ADB’s 44 th annual meeting in Hanoi in May 2011./.

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Intel to open 1 bln USD factory in Vietnam

Intel Corporation, the world’s largest semiconductor chip maker, will
open its 1 billion USD chip assembly and testing facility in Vietnam
by the end of this month, an executive said.

Intel’s
investment in Vietnam is aimed at tapping growth opportunities in
emerging Asia , Navin Shenoy, Intel’s general manager for Asia-Pacific,
was quoted by The Wall Street Journal as saying on Oct. 14.

"We
expect Asia ’s PC market to continue to grow by more than 20 percent
annually in the next few years. We definitely will continue to invest in
Asia where we see growth," he said.

Intel Corp., the first
major foreign investor in high technology in Vietnam, started
construction of the Vietnam facility in 2007, and 4,000 people are
expected to employ for the plant, according to the paper.

The
Vietnam facility is Intel’s seventh assembly and test site. Other
sites include Penang and Kulim in Malaysia, Cavite in the
Philippines, Chengdu and Shanghai in China, and San Jose in
Costa Rica.

Shenoy said that China, India, Indonesia and
Vietnam are important markets of the US chip maker in Asia, which
has a young population and a low PC penetration rate. He added while the
company is seeing relatively weak sentiment in the US and European
consumer markets, Asian customers and enterprises continue to buy PCs.

Intel
reported more than 11 billion USD in quarterly revenue for the first
time in the third quarter. 58 percent of its third-quarter revenue came
from the Asia-Pacific region which rose 20 percent to a record 6.40
billion USD, compared with 5.32 billion USD a year earlier./.

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Weak supporting industry threatens FDI

 A Honda motorbike engine on display at an exhibition in Ho Chi Minh City. Vietnamese firms are able to meet only a very small part of the demand from Japanese investors for spare parts and accessories.

Vietnam faces a reduction in foreign capital inflow even as it implements free trade agreements with its partners because its underdeveloped supporting industries will be a discouraging factor, experts say.

The Japan International Corporation Agency (JICA) has said Vietnam would not be a choice for foreign investors interested in the ASEAN region to set up factories over the next five years, if the supporting industries developed very slowly.

ASEAN members including Vietnam will complete the Common Effective Preferential Tariff, cutting import taxes on most items to zero in 2015. Some tariffs will be removed three years later.

JICA expert Katsumata Teruhisa said investors would house their factories in countries where supporting industries are highly developed, and only consider the others as potential markets.

Vietnam’s supporting industries were far less developed than other ASEAN countries like Thailand, Malaysia and Indonesia, he said.

Vietnamese firms are at present able to meet only a very small part of the demand from Japanese investors for spare parts and accessories in the automobile, motorbike, electric and electronic industries.

The local content ratio was about 5 to 10 percent in automobiles, 20 to 40 percent in electrics and electronics and 70 to 80 percent in motorbikes, Teruhisa said.

Half the content in local motorbikes was provided by foreign traders or investors who’ve set up factories in the country, he added.

Le Tuan Anh, managing director of Cathaco, said it was not easy for local firms to start up supporting industries because of the capital and skilled labor force required. Moreover, those entering this business need to be patient about getting returns on their investment, he said.

Cathaco, one of pioneers in the industry since 1999, manufactures parts and components of television sets or computers for foreign-invested businesses.

Anh said many local firms were not patient enough to run supporting industries which require producers to take care of details. They typically wanted to see their profits very quickly with minimum trouble, he said.

“That is the reason why only a small number of small- and medium-sized enterprises are involved in the (supporting) industries and why they have developed slowly in the country,” he told Thanh Nien Weekly.

Anh said his company was seeking foreign partners in Singapore, Thailand, Malaysia or China to join a new project which aims to increase its capacity and competitiveness because it was difficult to find local partners.

More time needed

Viroj Sirithanasart, managing director of Thai Tool and Die Industry Association, said it takes at least 10 years for a country to develop its supporting industries and Vietnam would need more than that.

Government support with favorable development policies and the supply of skilled labor was necessary for this development, he stressed.

Sirithanasart said Thailand had started developing supporting industries for electronics, plastics and steel over 10 years ago and now the country is focusing on the automation industry.

Thai supporting industries mainly serve the automobile industry and their capacity, with about 50,000 firms in the fray, exceeds its export demand.

Vietnam should utilize support from France and Japan, he said, adding the latter has also helped Thailand to develop is supporting industries.

Thai businesses are looking to collaborate with Vietnamese partners to develop the industry in the country, he added.

JICA has said it is developing a project to help increase local content in products made by Japanese businesses in the automobile, motorbike, electrical and electronic industries.

The project, which will work with 100 businesses over four years from 2010, was surveying requests from local businesses in three main regions of the country, the agency said. It said 21 businesses have been selected so far to receive support from Japanese experts in the technical aspects of plastic production and die-casting as well as management activities.

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Let businesses take the lead

The government’s policy to prioritize certain industries and encourage businesses to invest in them should be abandoned, experts say.

They say that businesses should decide what they want to do based on their reading of the market, and the government should support them by creating favorable conditions for business development.

Nguyen Xuan Thanh, a lecturer with the Fulbright Economics Teaching Program, told the Thoi Bao Kinh Te Saigon magazine that the experience of other countries showed choosing a certain industry or industries and giving them priority treatment had failed, most of the time.

“With the development of technologies and the global restructuring of labor forces proceeding at a fast pace, such a policy is no longer suitable,” Thanh said.

Vietnam has focused on several industries based on “the government’s orientation,” he said, but this has not paid off.

The automobile and electronics industries, which have been priorities for many years, have made little progress with most companies still engaged in assembly work, he said. Other sectors like sericulture and shipbuilding had actually regressed despite being given very favorable conditions.

On the contrary, some sectors have grown well even though the government did not set any clear orientation for their development. The tra fish sector, for instance, was driven by farmers as they saw the export potential of the fish, which used to be underrated earlier because of their low value, Thanh said.

“It’s the farmers who decided to raise the fish, not because the government told them to do so,” he said.

Huynh The Du, also from the Fulbright Economics Teaching Program, said the growth of a certain sector of the economy is mainly determined by businesses.

For example, Ho Chi Minh City has a strong financial and banking sector because it is home to many banks and financial companies. “It’s all about costs and benefits. Businesses have flocked to the city not due to any policy but simply because they can find favorable conditions for their business and a better chance to earn profits.”

“Businesses have the best understanding of the market, but sometimes they make mistakes,” Thanh said. “So how come government officials who do not have firsthand business experience decide (what is good) for businesses?”

The success of the tra fish sector was possible because the government gave it the right kind of support – by facilitating research of new breeds and scouting export markets, Thanh said. “That’s the role of the government: to create favorable conditions. Once the business environment has been improved, if an industry fails to grow, it means it doesn’t have the potential.”

Economist Tran Du Lich said infrastructure is one of the bottlenecks that the government needs to remove to help businesses, along with improving the quality of human resources.

Taking logistics as an example, it would be difficult for the industry to grow if the road system to seaports is not improved, said Lich, who is also a National Assembly representative.

Thanh said the government should also review the policies that can have negative impacts on doing business.

For instance, the financial sector in HCMC can be affected by a regulation that bans high-rise buildings in the city center, he said.

The nature of financial services is that they concentrate on a small area, which can be seen in all financial centers like Singapore, Shanghai, Hong Kong and Tokyo. A ban on high buildings will increase rentals in the city downtown, discouraging investors, he said.

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Apple's earnings to showcase one-two punch

Photo: AFP

SAN FRANCISCO - Apple Inc should affirm next week that its six-month-old iPad tablet computer is selling well despite a shaky consumer market, while the iPhone continues to fend off a strong challenge from rival Google Inc.

Analysts expect fourth-quarter earnings to showcase Apple's powerful one-two punch of the iPhone and the iPad, although some still question whether, with a plethora of rival products set to hit store shelves, Wall Street can justify Apple's stratospheric valuation.

The shares of the second largest corporation in the S&P 500 jumped more than 4 percent on Friday as anticipation mounted ahead of Monday's report.

As has been the case for many quarters, iPhone growth will be the main driver, even as anticipation builds over an iPhone early next year tailor-made for the network of top mobile carrier Verizon Wireless Inc -- a move that would instantly boost Apple's consumer reach in the US.

Apple's shares stand at a record high after breaking through the $300 mark for the first time this week. The company has so far proved resilient in the face of weak US consumer spending. At the same time, gross margins should get a boost from falling component costs.

Although there is little doubt September quarter numbers will be strong, investors have come to demand an out-sized performance, so the bar is raised every three months.

Analysts say a big upside surprise may be tougher to achieve this time around given constraints in iPad and iPhone supply.

But the iPad is playing a bigger role in Apple's business and could be a wild card this quarter, and Wall Street is eager to gauge consumer enthusiasm for the tablet. While demand has been strong, manufacturing bottlenecks have limited production.

Apple trades at nearly 21 times forward earnings, a healthy premium over smartphone and PC rivals.

A second leg

Investors are looking at the iPad as the second pillar of growth along with the iPhone, which has keyed Apple's surge over the past few years, but is facing stiff competition from smartphones based on Google's Android software.

"It's going to be a combination this time of their two most important products, iPhone and iPad, and both are going to do very well," said Gleacher & Co analyst Brian Marshall, who expects Apple to pass Exxon Mobil Corp as the largest company in the S&P 500 in short order.

Apple launched the iPad in April and sold 3.3 million units in the June quarter. Analysts expect sales of 4.5 million to 5 million units for September.

Susquehanna Financial analyst Jeff Fidacaro noted that because investor expectations are so high, there may be some disappointment if the iPad number is below 5 million.

Fidacaro said that, despite Apple's size, there is still room to grow because its key markets -- smartphones and tablets -- are young and expanding.

"You've got two huge product cycles going on right now," he said. "And the iPad has no competition."

iPhone sales should continue to be strong following the June launch of the iPhone 4, with estimates in the 11 million to 12 million unit range.

Fidacaro said Apple is building a CDMA iPhone for expected launch early next year, potentially with Verizon, that would add more than 10 million units to his 2011 sales estimate.

But the threat from Google looms and new rivals are emerging. Android was the most popular platform among US smartphone customers in the past six months, according to Nielsen.

"There's going to be no shortage of competition next year," said Pacific Crest Securities analyst Andy Hargreaves.

Elevated expectations

Apple, famous for its low-ball forecasts, stunned investors in July when it set a revenue outlook for September that was $1 billion higher than Wall Street's target.

The company has beat the consensus estimate in each of the past eight quarters by a minimum of 13 percent and has bested revenue estimates for the past seven quarters.

Hargreaves said investors should expect another beat this time around.

"I don't think it will be a big as what we've seen in the past, at least relative to our numbers, because of supply constraints early in the quarter," he said.

Apple is expected to post earnings of $4.08 a share on revenue of $18.9 billion, according to Thomson Reuters I/B/E/S.

According to StarMine's SmartEstimate, which places more weight on recent forecasts by top-rated analysts, Apple should post EPS of $4.17 on revenue of $19.1 billion.

Analysts expect a gross margin of 38.2 percent. Apple's margin has been pinched by the iPad, but falling prices for components such as NAND flash, which Apple consumes in huge amounts, could help in the September quarter.

Wall Street expects Apple to report sales of roughly 10 million iPods and 3.5 million to 4 million Mac computers.

Macs have been a steady source of strength for Apple over the past few years. Sales surged 24 percent in the US in the July-September period, according to industry tracker IDC, a far stronger performance that its rivals.

Apple could dominate the headlines next week. After its earnings report on Monday comes a media event on Wednesday focused on Mac computers. That is followed by quarterly results from AT&T Inc, the exclusive US iPhone carrier, and Verizon.