Deposits down; bankers fear dong shortage

HCM City banks saw deposits as of end-May has fallen by 1.75 per cent since December 31 to VND792.2 trillion (US$36.64 billion).

Outstanding loans were up 5.62 per cent at VND748.9 trillion ($36.53 billion).

Dong deposits saw a fall of 7.2 per cent while US dollar deposits rose by 125 per cent.

This falling trend in dong deposits has also been seen country-wide, resulting in an overall fall in deposits.

Many bankers admit that this year deposit growth has been much lower than loan growth though many banks violated the central bank’s 14 per cent deposit interest cap and offered rates of even 19 per cent.

They say since getting dong deposits has become so difficult, cutting interest rates on them has become impossible.

The question is if there is actually a shortage of dong.

Nguyen Huu Viet of IRS Securities Company says the dong shortage is due to many reasons, one of them being the huge amount of loans – worth hundreds of trillions of dong – outstanding from the real estate sector.

Meanwhile, the housing market is in a deep slump from which it shows no signs of recovery. As a result, housing developers are unable to raise the money they need to repay their loans or develop new projects.

The sky-high credit growth in recent years, of 38 per cent in 2009 and 31 per cent in 2010, are also a reason for the dong shortage because some of the loans have not yet fallen due or have already become bad debts, Viet explains.

Phan Dung Khanh of Kim Eng Viet Nam Securities Company says many firms made losses because of the economic turndown and so did not have the means to repay bank loans.

Cao Sy Kiem, chairman of the Small and Medium Enterprises Association, says people are hanging on to cash and not depositing in banks or investing elsewhere because of their fear of rising inflation, and are waiting for deposit interest rates to rise to avoid losses.

Economists say that when the Government tightens monetary policy like it has now, the feeling of a shortage of money is easy to understand.

The central bank keeps draining liquidity from the market to combat inflation, they say.

However, in May it pumped VND20.6 trillion ($1 billion) to buy $1.2 billion to supplement its reserves and partly ease the dong shortage.

Land prices

Regardless of market difficulties, land remains the preferred choice for investors, and demand for the segment is expected to continue its upward climb for the next few years.

The apartment market, especially the upper segment, faces many difficulties like high interest rates and tight credit which discourage people from buying flats.

Because of low liquidity, the secondary condo market too has been hit.

The excessive supply as a result has forced many developers to offer freebies and discounts to potential buyers.

However, the property segment comprising villas, townhouses, and land plots remains stable, with the primary market recording strong numbers in the first quarter.

Property services provider Savills Viet Nam reports that demand in HCM City remains strong, with the absorption rate in the primary market by 6 percentage points since the end of last year to 23 per cent.

Nguyen Nguyen Thai, head of residential project marketing at CB Richard Ellis Viet Nam, says the residential market has seen a development trend in property investment between the apartment segment and the village and town house segments.

Many buyers are considering buying land and housing in outlying districts rather than luxury apartments in prime areas.

Instead of keeping their savings in cash at a time when inflation is very high, some people are looking at property as an investment channel to protect their assets against further currency devaluation.

This explains why land in fringe districts and neighbouring places like Binh Duong, Long An, and Dong Nai remain attractive to many.

The liquidity in the segment is also a reason for many people to shift their money into it.

In Ha Noi too, Savills Viet Nam reports, the prices of villas and townhouses rose in the first quarter – villas by 20 per cent, and townhouses by 15 per cent.

Remittances

Most remittances coming into Viet Nam are invested in property while a smaller portion is deposited in banks or used to buy durable products.

According to a World Bank survey in 2008, remittances help increase expenditure on land and houses while a small part is used for services businesses.

Viet Nam ranked 16th among countries receiving remittances last year.

Figures from the central bank show there were remittances of US$8 billion, compared to FDI of $9.6 billion and official development assistance of $2.6 billion. The figures do not include items and cash sent to Viet Nam through non-banking channels.

The remittances have helped offset nearly 50 per cent of the country’s trade deficit and reduce the reliance on foreign funds.

Most remittances are from overseas Vietnamese in the US, Canada, and France. HCM City was the biggest recipient.

There are four million overseas Vietnamese living in nearly 100 countries and territories.

Due to the global economic uncertainty and the return of many Vietnamese guest workers from Libya, remittances have decreased recently.

The State Bank of Viet Nam says remittances to HCM City in April were down 19.6 per cent from March to $ 367.6 million. The fall in remittances is also caused by the drop in the interest rates for dollar deposits in Viet Nam.

Banks fear bad debts

Many banks are concerned about rising bad debts due to the economic situation and high interest rates.

Some banks with a tradition of prudent credit management have revealed that since the end of last year their non-performing loans (NPLs) have increased by 0.5 per cent.

Others admit to a rise of 1 per cent and even 2 per cent.

In HCM City alone, NPLs rose to 4.2 per cent by April, 5.6 per cent for State-owned lenders and 2.9 per cent for joint-stock entities.

Some financial leasing companies reported an NPL ratio of even 26.3 per cent.

Central bank governor Nguyen Van Giau estimates NPLs at around VND100 trillion, or $5 billion.

Fitch Ratings says that the share of NPLs in Viet Nam’s banking system was a staggering 13 per cent, much higher than the official figures due to different criteria for identifying them.

The threat of NPLs will possibly become more stark in the late second quarter or early third quarter when the high interest rates tell on borrowers. – VNS

Tags: Vietnam banking industry, vietnam dong, Vietnam finance, Vietnam financial