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VN business news (Mar 30, 1997)
Bankers say Vietnam's banking sector entering a critical period
Economic muddle puts Vietnam reforms to the test
Vietnam approves 163 million dollar Hai Van pass tunnel project
Vietnam seeks ethnic Chinese potential for development
Vietnam's communist party chief reaffirms leading role of state sector
Vietnam Consumer-Good Imports $2.0 Bln In 1996 - Report
Vietnam Central Banker Sees Dong Stability For Few Years
Sunday, Mar 30, 1997 [33]... Back to headlines
_[INLINE] Bankers say Vietnam's banking sector entering a critical
period_
by Frederik Balfour
HANOI (AFP) - Vietnam's banking sector is at a critical juncture with
the central bank's ability to manage a potential crisis to be severely
tested in coming months bankers say.
Vietnamese banks, particularly the 54 non private joint-stock banks
are in a parlous state, they say.
Most are severely undercapitalized and have overextended themselves
with loans backed with flimsy, or as state-owned Bank of Foreign Trade
of Vietnam (Vietcombank) discovered last week, non existent
collateral.
On Tuesday, a director from private garment manufacturer Minh Phung
Ltd. and a director from trading company EPCO Ltd. were arrested in Ho
Chi Minh City after defaulting on a loan worth 18 million dollars to
Vietcombank, in which the collateral had been sold off.
The incident dealt another blow to public confidence in the banking
sector which has been rocked by mishap and scandal since the beginning
of the year. And unless the state bank imposes some discipline in the
sector soon, things could unravel quickly, bankers say.
"This is a very critical time. It's going to show the level of their
(the central State Bank of Vietnam's) maturity. It is tough to say
what the size of the problem is because there are so many rumours,"
says David Hutcheson, chief executive for Hongkongbank in Ho Chi Minh
City.
In February, it was revealed one of the country's leading joint stock
banks, Vietnam Joint-Stock for Private Enterprises (VP Bank) failed to
pay three million dollars under a deferred letter of credit.
Bankers suspect VP Bank's problems weren't unique.
"Are we talking about the tip of an iceberg. Is the disease rampant,
and how bad is the general state of the industry. We just don't know,"
says Hutcheson.
Estimates of deferred letters of credit falling due this year could be
as high as 1.5 billion dollars, a condition compounded by an
overvalued exchange rate, bankers say.
At the root of the problem is legislation which has failed to keep
pace with the growth of the industry. Standard prudent banking
practices such as bad debt provisioning, credit risk evaluation and
compulsory bank audits are non existent in Vietnam, and the State
Bank's supervisory role is murky at best.
"There has to be a shakeout in the whole industry. There is a bit of a
crisis at the moment, But a managed (bank) failure would be a good
thing," provided depositers are protected, said a western banker in
Hanoi who noted that Vietnam's lack of deposit insurance makes the
State Bank's task particularly tricky.
"The State Bank has to put up a firewall," said another foreign
banker, who noted that the central bank is essentially a watchdog
without teeth.
But the situation doesn't look likely to improve soon. The National
Assembly decided at the last minute to shelve two landmark banking
laws that were scheduled for passage in the assembly session that
opens April 2, underscoring official nervousness with the situation.
"The national assembly is aware of these banking problems. We don't
want to have a situation like in Albania where a lot of people's
credits collapsed," assembly office chairman Vu Mao told reporters.
The State Bank has declined to comment on the reason for the delay and
as further evidence of its nervousness, has issued a circular strictly
curtailing local press coverage of the banking industry.
With the delay in the banking law, other urgent reforms in the banking
system, like the introduction of deposit insurance, compulsory audits
and bad debt provisioning and basic minimum financial standards will
also have to wait at least six more months.
Foreign banks are also partly to blame for current problems, Hutcheson
says. Some have given local banks two-year credits for fertilizer
imports which operate on a 90-day cycle, enabling banks to speculate
on the dollar, commodities and property deals.
"None of us have done any due deligence, and gone in and said, can we
inspect your books," said Hutcheson, who is nonetheless comfortable
with his bank's risks.
___________________________________
Sunday, Mar 30, 1997 [34]... Back to headlines
_[INLINE] Economic muddle puts Vietnam reforms to the test_
Hanoi (Reuter) - Vietnam's Communist government is facing the most
serious test yet of its willingness to quicken the pace and broaden
the scope of reform as trouble looms in the banking system and the
state sector, analysts said on Sunday.
Mounting revelations about bad bank debt in recent weeks have raised
concerns that incompetence, cronyism, lack of transparency and
half-hearted supervision are finally taking their toll.
As a measure of the alarm in government circles, one senior official
said last week that the authorities were anxious to avoid the kind of
failed savings schemes chaos that has rocked Albania recently.
The government also issued a list of areas related to the banking
industry which have been barred or restricted from media coverage
under state secrecy laws.
Analysts said the problem was far from threatening the economy. But
they welcomed the furore over the banking system's failing because it
appeared to be galvanising the government into bolder action.
``The fact that everybody is now zeroing in on the banking system and
probing its weaknesses is not a bad thing,'' a senior Western
economist said.
``I think that the political system is waking up to the reality that
the banking sector is complicated. It has to be supervised and it's
not just an instrument of state policy.''
The debt problem came under the spotlight in February after reports
that a highly respected private bank had failed to meet the payment
deadline on a deferred letter of credit.
The industry took another body blow last week when two prominent
business executives were arrested in Ho Chi Minh City for their
alleged involvement in a massive bank loans scam.
True to their penchant for secrecy, commercial and central bankers
have been reluctant to talk about the industry's woes.
Analysts said the country's state-owned banks, which were spun off
from the central bank as the reform process gathered steam in 1990,
were still sitting on a mountain of bad debt left from years of
politically inspired lending to the state sector.
More worrying is the heavy exposure of both state-owned and private
banks in the south of the country to the property market, whose boom
has turned to bust.
There was also a flurry of short-term letters of credit issued for
imports in the first half of last year as limits on domestic lending
were tightened. Many of those are now falling due.
One Western banker put the stock of outstanding short-term debt at
$1.2-1.5 billion, which at around 10-15 percent of annual imports was
not excessive for short-term trade financing.
He said there seemed to be a fear in the industry that a host of
problems were now closing in and threatening a meltdown.
``I'm not sure that's true,'' he said. ``What they add up to is that
the banking system needs attention. That doesn't mean it's in
crisis.''
But he said one area that needed serious attention was the habit of
doing business on the basis of personal relationships, which
encouraged corruption and left little room for credit analysis.
He pointed to reports that there had been a run on deposits at one
bank recently after its owner died as an indication of how individuals
were trusted more than the system.
Analysts argue that cronyism is also to blame for many of the problems
in the sprawling state sector, where personal links between
businessman and banker are all-important -- and, increasingly, an
embarrassment for the party.
The official news agency last week delivered an unusually frank
critique of state-run trading companies, saying many had been stung by
the advent of market economics and just 30 percent had made a profit
in the past five years.
That may signal a new awareness that deeper and faster reforms are
needed. But analysts say time is running out for policy makers to
decide if they have the will to embrace them.
___________________________________
Sunday, Mar 30, 1997 [35]... Back to headlines
_[INLINE] Vietnam approves 163 million dollar Hai Van pass tunnel
project _
HANOI, March 30 (AFP) - Vietnam has approved a 163 million dollar
project to build a tunnel through Hai Van pass in central Vietnam, the
official Vietnam News Agency reported Sunday.
The project includes construction of a 14 kilometer (8.68 mile) road,
including a five kilometer (3.1 mile) tunnel, running through Hai Van
pass on Vietnam's backbone north-south National Highway One, the
agency said.
The rail and road tunnel will dramatically shorten travel time between
Vietnam's ancient imperial capital of Hue and the coastal city of
Danang, a journey which now entails snaky switchbacks to climb the 900
metre (3,000 foot) pass.
More than 59 million dollars of the total project cost will be
provided by Japan's Overseas Economic Cooperation Fund (OECF), it
said.
___________________________________
Sunday, Mar 30, 1997 [36]... Back to headlines
_[INLINE] Vietnam seeks ethnic Chinese potential for development _
Japan Economic Newswire
Hanoi-- A high-ranking official of the ruling Communist Party of
Vietnam has urged Ho Chi Minh City to mobilize the potential of its
ethnic Chinese residents to contribute to the economic development of
Vietnam, according to official media based in the city.
Truong Tan Sang, a member of the party's policy-making political
bureau and secretary of its committee in the city, was quoted by the
Tuoi Tre newspaper Saturday as saying that the main initiative so far
has been the establishment of joint ventures between state-run
companies and those run by ethnic Chinese.
Sang, addressing a conference Friday to review the party's policy on
harnessing the business potential of ethnic Chinese, also urged city
authorities to encourage them to help woo overseas investment,
especially from their relatives, the paper reported.
Ho Chi Minh City is home to more than half a million ethnic Chinese,
called "Hoa" in Vietnamese.
The Saigon Giai Phong daily, the mouthpiece of the city's party
committee, also quoted Sang as urging the authorities to intensify
propaganda work among the Hoa against any attempt to separate them
from others in the Vietnamese community, which consists of about 60
ethnic groups.
Tens of thousands of Hoa fled the country before and after a
Vietnam-China border war in early 1979. Those who remained gradually
regained their important role in Vietnam's economy and helped rekindle
Vietnam-China bilateral relations, which were normalized in late 1991.
By the end of last year, Ho Chi Minh City counted 1,380 companies run
by Hoa, representing 19% of the total.
___________________________________
Sunday, Mar 30, 1997 [37]... Back to headlines
_[INLINE] Vietnam's communist party chief reaffirms leading role of
state sector_
HANOI (AFP) - The chief of the ruling communist party of Vietnam has
reaffirmed the leading role to be played by the state in Vietnam's
economy, official reports said Sunday.
"In terms of production, we need to affirm that the state sector will
play the key role," general party secretary Do Muoi was quoted as
saying by the official Vietnam News Agency.
Muoi, who is the number one in Vietnam's politburo, has on many
occasions insisted on the importance of maintaining strict state
control over the economy and on checking foreign influence.
"We want forever to maintain our national independence and unity," he
said, adding all foreign investment must be based on mutual benefit
and respect of independence and sovereignty.
Addressing 800 party stalwarts over the weekend at the close of a two
week training course to study the resolutions of last June's eighth
communist party congress, he stressed the encouragement of the
non-state sector as well.
"In parallel with the policy to ensure the leading role of the
state-owned economic sector, the state encourages the growth of other
economic sectors, increasing joint ventures and integration between
different economic sectors...in which state role will become bigger
and bigger," the 80-year-old leader said.
Vietnam set itself ambitious growth targets for the next five years
and has tremendous cash needs to finance a 40 billion dollar
investment plan.
Muoi said Vietnam would continue to open the economy and attract
foreign investment but that domestic capital must be the basis of
growth.
Commenting on the government's concerns, one foreign economist told
AFP: "At the political level the party doesn't want to mortgage the
country's future to foreign investors, banks or multilateral
institutions."
But he warned Vietnam's growth could be derailed if it fails to create
"a central banking architecture" that will enable the country to
mobilize domestic savings.
___________________________________
Sunday, Mar 30, 1997 [38]... Back to headlines
_[INLINE] Vietnam Consumer-Good Imports $2.0 Bln In 1996 - Report_
Hanoi (DJ) -- Vietnam's consumer-goods imports in 1996 were worth
about $2.00 billion, or about 18% of officially reported imports in
the year, according to an article in official media Saturday.
Citing a source at the Ministry of Trade, the English-language Saigon
Newsreader said the actual level of consumer-goods imports last year
was markedly above the $778-million figure registered through official
trade channels.
Vietnam's total imports in 1996 have been reported at $11.14 billion.
The nation had a trade deficit of nearly $4.00 billion last year,
about 17% of gross domestic product.
An increase in consumer-goods imports has been blamed for part of the
menacingly large deficit, although few concrete statistics have
existed about the value of such imports. Government officials
generally have said consumer imports represent only about 10% of total
imports.
The Saigon Newsreader said border trade with China, so-called
non-trade imports and smuggling, all of which it indicated aren't
included in official data, were factors boosting the actual level of
consumer-goods imports.
The report added the government will announce new restrictions on
consumer imports in the next several days.
___________________________________
Sunday, Mar 30, 1997 [39]... Back to headlines
_[INLINE] Vietnam Central Banker Sees Dong Stability For Few Years _
Hanoi (DJ) -- There will be 'no big fluctuations' in the value of the
dong in the next few years, Nguyen Doan Hung, the director of the
foreign exchange department at the State Bank of Vietnam - the central
bank - said Saturday.
In a written response to questions submitted by AP-Dow Jones, Hung
added: 'the State Bank surely won't let any major exchange rate
fluctuations happen. The stable exchange rate that can boost exports
and control imports is the best one for the current economy.'
The State Bank engineered a 3.9% depreciation of the dong at the start
of March when it widened the daily interbank trading range of the
dong.
Since then, participants in the foreign exchange market have wondered
whether that move was a one-time event or the start of a series of
changes that would allow the currency to trade more freely.
Given Vietnam's worryingly large trade deficit, a more market-driven
dong would almost certainly be a weaker dong at this point in time.
Saturday, the dong ended at 11,655 to $1, steady from Friday, and at
its floor against the U.S. currency.
The dong essentially has hovered at or just off the floor since the
week after the daily interbank trading band was expanded to
plus-or-minus 5.0% off a daily 'central rate' from plus-or-minus 1.0%.
The State Bank sets the central rate each morning.
Hung said Vietnam is likely to run an annual trade deficit of about
10% of gross domestic product in the next several years. As a result,
demand for foreign currency will remain 'very high,' he said.
However, inflows of foreign direct investment and foreign aid will
allow Vietnam to meet this demand, he said.
Additionally, the resolution of Vietnam's outstanding Paris and London
Club debts in the last few years will open new opportunities to borrow
foreign funds, Hung said, presumably alluding to the possibility of
borrowing long term to pay off shorter-term foreign debts.
Vietnam's trade deficit in 1996 was nearly $4.00 billion, or about 17%
of GDP.
In the first quarter of 1997, the trade gap has been forecast by the
government at $935 million, narrower from $1.00 billion in the
January-March period of 1996.
Hung reiterated the State Bank's position that the goals of its
foreign exchange policy are to boost exports, cut imports, lift
foreign currency reserves and stabilize the macro-economy.