Strong hand to knock market into shape

Vietnam Association of Financial Investors (VAFI) just forwarded a ‘special’ letter to new Minister of Finance (MoF) Vuong Dinh Hue and State Bank Governor Nguyen Van Binh detailing strong reforms.

These include bringing the lending rate to 12 per cent per year, modifying bullion market management and cutting down 20 per cent of joint stock commercial banks.

VAFI assumed the MoF and central bank should pull down bank lending rates to 12 per cent, per year.

“If the 12 per cent, per year lending rate is kept in a sustainable manner, we will succeed with a number of macroeconomic development targets such as gross domestic product growth, inflation and over-spending curbing targets and stabilising the foreign exchange market,” said VAFI in the letter.

The financial entity also proposed the MoF and State Bank scale-up efforts to lure idle capital into banks and the stock market and stop money from flowing into bullion and foreign currency trading.

According to VAFI, just 35 per cent of idle capital was injected into banks and the stock market, while the remainder flows into other channels not beneficial to the economy.

Deposit and lending rates in other countries are five times lower than those in Vietnam as the governments in these countries had policies to direct money flows into banks and bourses, according to VAFI.

VAFI asked the MoF to focus on the local stock market. “The stock market helps banks and firms raise capital to stay financially healthy and drive down interest rates and the production costs,” said VAFI.

The stock market is now in a poor state with eroding investor confidence and sinking liquidity. Key reasons were economic uncertainties and ineffective management, according to VAFI.

The entity said controlling the foreign exchange market would be hard unless gold trading was controlled.

The money pumped into gold trading is ‘dead’ capital since it is not directed into production, whereas gold trading does not require specific licences from competent state bodies and gold traders are not subject to paying taxes.

Meanwhile, stock investors were required to pay dual taxes on dividend and on stock transfers, according to VAFI.

Relative to the forex market, VAFI recommends the State Bank restrict dollar lending, hiking obligatory reserve rates towards dollar deposits and ease the dollar deposit rate by one percentage point to 1 per cent.

In respect to banking structuring, VAFI suggests cutting down local bank numbers by 15-20 per cent through letting them be dismantled or merging, not establishing gold, insurance and financial services firms belonging to banks, hiking foreign entity ownership rates in Vietnamese banks to 35 per cent of banks’ chartered capital and allowing these foreign partners to buy stock tantamount to 10 per cent of firms’ chartered capital without the need for voting.

VAFI also voiced some proposals concerning tax policies and state firm reforms. Accordingly, state firms with dominant state ownership should be turned into public companies with obligatory information disclosure requirements. VAFI estimates with 90 per cent of state firms following this model, their contribution would make up 10 per cent of state budget collections. – VIR

Tags: , ,

Posted by VBN on Sep 15 2011. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

You must be logged in to post a comment Login

Stay informed everyday

Subscribe to free RSS and email updates from Vietnam Business News

Subscribe via Email Subscribe in a Reader Follow us on Twitter Connect on Facebook

RSS Singapore Business News

  • Sembcorp, SembMarine, SIA, Hyflux, Oxley, Cosco
  • Jones Lang reports strong Q3 earnings
  • Asia-Pac Reits can survive challenges ahead: S&P
  • Green Lodge up for sale again at S$195m
  • HDB unveils roadmap for better living
  • OCBC Group posts Q3 net profit of S$513m

RSS India Business News

  • Low prices may cut Rabi potato acreage by 15 to 20 per cent
  • NSE aims to launch SME exchange this month
  • Sensex ends up 17 points; DLF, BHEL, Bharti Airtel gains
  • Sensex ends near 17500; BHEL, DLF, Tata Power up
  • Sensex ends up 17 pts; BHEL, DLF, Tata Power gains
  • Nifty near 5200; IDFC, Tata Motors, SAIL down

RSS Malaysia Business News

  • Zelan to build IIUM Gambang campus
  • Andhra Bank to start ops here next month
  • Kimlun to buy land in Seremban
  • DRB-HICOM plans RM1.8b sukuk
  • KL stocks mixed on blue-chip rebound
  • Ringgit falls on weak demand

Sponsored

  • Looking for an overseas forex broker?
  • Trading Point now offering Forex Malaysia and FX Japan with Forex, CFD's and Futures.