BUSINESS IN BRIEF 29/3 Anti-dumping duty imposed on VN bicycle tyres The information was provided by the Viet Nam Competition Authority under the Ministry of Industry and Trade on March 25. An anti-dumping duty of US$0.59 per kilogram has been imposed on Kenda Rubber ( The duty will be effective from the date of the Brazilian Ministry's decision and will be applicable for five years. Bicycle tyres imported from Repsol lubricants enter Repsol lubricants entered According to the Industry and Trade online newspaper, these products are used by cars and motorcycles and also in industrial operations. Repsol SA has a presence in over 70 countries, including several Asian markets such as Lubro Corp said it is building a nationwide distribution network. Repsol SA is based in Government bonds fetch over 6 trillion VND The State Treasury mobilised over 6 trillion VND (282 million USD) in Government bonds through a tender organised by the Hanoi Stock Exchange on March 27. The bonds on offer are worth 10 trillion VND (470 million USD) in total, including those of three-, five-, and ten-year terms. The money mobilised includes 3.3 trillion VND (155 million USD) in three-year bonds with an annual interest rate of 6.1 percent, as well as 950 billion VND (44.6 million USD) and 2 trillion VND (94 million USD) in five- and ten-year bonds with 7.13 and 8.7 percent, respectively. The State Treasury has so far this year mobilised nearly 69 trillion VND in Government bonds via tender.- Rice exports reach 1.31 million tonnes in Q1 In March alone, the country shipped 524,000 tonnes, grossing US$243 million in export revenue. The average export price of rice bumped up 8% compared to Q1 of 2013 to US$486.5 per tonne. With these positive results, the The Vietnam Food Association (VFA) forecasts that At present, the price of dried paddy at stores in the Mekong River Delta is hovering around VND5,250-5,350 per kilo while the price of long-grain paddy is holding steady at about VND5,550-5,650 per kilo. The price of 5% broken rice ranges from VND7,750-7,850 per kilo while 15% broken rice varies from VND7,500-7,600 per kilo and 25% broken rice at VND7,250 -7,350 per kilo, depending on locality. Vietnam-Indonesia trade predicted to reach US$10 bil The prediction was made by experts at a March 27 seminar in Investment and Trade Promotion Centre (ITPC) Director Pho Nam Phuong, affirmed Last year, Both nations agreed to set up a sub-commission on Food and Energy Security Cooperation (JCFESC) in 2014 under the framework of the Joint Commission for Economic, Scientific and Technical Cooperation (JCESTC). Accordingly, Ari Satria, Director of Market Development and Export Information under 130 businesses to attend MTA Hanoi 2014 Some of the best and latest new equipment and technologies which are suitable for developed industry are going on display in More than 130 businesses from 19 countries and territories around the globe have registered to participate in the exhibition. “Production in northern Conference seeks ways to help SMEs access capital A public-private dialogue under the Asia-Pacific Cooperation (APEC) took place in The two-day event, held by the Ministry of Industry and Trade (MOIT) in conjunction with the APEC Secretariat, aims to strengthen mutual understanding between the private sector and the Government, thus enhancing their coordination efficiency. According to MOIT Deputy Minister Le Duong Quang, support policies to help SMEs and VSEs overcome barriers in their access to capital are crucial for the viability and development of the firms, especially in developing APEC countries. Currently, more than 90% of businesses in Meanwhile, Indonesian Deputy Minister of Cooperatives and SMEs ChoirulDjamhari held that in order to help the firms overcome capital difficulties, the commercial banks should give them at least 20% of their total investment, while convincing commercial banks to adopt more preferential policies for loans for production rather than consumption. Ha Thu Giang, Deputy Head of the state credit policy office of the State Bank of Vietnam (SVB), said since May 2012, the SVB has cut the interest rate for short-term loans in VND for SMEs eight times, from 15% to 8% currently. At the same time, Professor Andrew Terry from He also stressed the importance of a stable macro-economy and an effective finance base for SMEs and VSEs’ smoother access to capital. Vietnam, RoK share audit, inspection experience The Government Inspectorate of Vietnam held talks in Hanoi on March 27 with a delegation from the Republic of Korea (RoK)’s Board of Audit and Inspection (BAI) to share their experiences in directing and managing inspection work. Deputy Inspector General Le Tien Hao stressed the talks are a valuable opportunity for the two bodies to foster their friendship and collaboration as well as realize the goals as stated in their memorandum of understanding. Hao said he hopes that the two sides will check, evaluate and amend the signed cooperation agreement, and invited the BAI’s chairman to visit BAI Secretary General Kim Young-ho said this is a good chance to bring the friendship and affiliation between the two agencies on a par with the Vietnam-RoK strategic cooperative partnership. Both sides also discussed orientations to intensify their linkup in the coming time and organise training courses in the RoK to improve Vietnamese inspectors’ capability in tackling complaints and denouncements. South African Ambassador Kgomotso Ruth Magau has said Addressing a Vietnam-South Africa trade and investment promotion conference in The event, jointly organised by the The event also updated Vietnamese businesses with information on the trade and investment policies of Representatives from about 20 South African firms at the event also introduced their business in various fields such as information technology, communications, mining, equipment, chemicals, cosmetics and food. According to Nguyen Tan Thanh, Director of the VCCI - In the future, Seminar discusses exports to Japan The event also helped local enterprises to learn more about trade policies and share experiences of doing business in demanding markets. Ministry of Industry and Trade (MoIT) Trade Promotion Agency Deputy Head Ta Hoang Linh said that However, the country has high standards in agriculture and industry, a complicated distribution system and technical barriers towards food products. At the seminar, experts urged businesses to learn more about Japanese culture and business customs. In particular, they should learn about regulations on food safety and hygiene to provide high quality products and reduce the quarantine period. It is imperative to fully utilize Deputy PM visits VSIP Bac Ninh Deputy Prime Minister Hoang Trung Hai has highlighted Vietnam-Singapore Industrial Park (VSIP) Bac Ninh’s capacity for building infrastructural facilities and attracting major global investors and trademarks. During his March 27 working session to VSIP Bac Ninh, Hai said that there should be measures to accelerate the progress of VSIP Bac Ninh construction in the second phase, develop urban areas and build houses for workers. He asked the province to facilitate investors’ operations, affirming that the Vietnamese Government will focus on implementing administrative reforms, creating a favourable environment to attract investors to Bac Ninh and VSIP Bac Ninh, in northern With a uniform and modern infrastructure, VSIP Bac Ninh has attracted 50 major investors including Nokia, PepsiCo, Foster, and Mapletree to lease land and build workshops. US$1.09 billion, mostly from FDI enterprises has been invested in Bac Ninh so far. The industrial park has generated 17,000 jobs until March 2014 and is expected to provide approximately 20,000 more later this year. APA – an effective remedy against transfer pricing Enforcing the Advance Pricing Agreement (APA) mechanism is considered an effective solution for combating transfer pricing which has been reportedly increasing among multinational corporations (MNCs) in At a recent seminar in Transfer pricing is a hot issue that has garnered the great attention of taxation agencies throughout the world, because MNCs can directly affect the allocation of profits to individual countries by increasing or decreasing the price they charge each other, even though the profits of the group as a whole remain unchanged. Many countries including the In late 2013 the Vietnamese Ministry of Finance issued a circular, guiding APA implementation, creating an important legal corridor for preventing tax evasion and minimizing disputes about market price evaluation in related-party transactions. Colin Clavey, a senior consultant on APA of the International Financial Corporation, and Sabine Wahl, an independent consultant, shared experience in reaching viable APA deals, saying both tax agencies and tax payers must prepare necessary conditions before negotiations. Businesses should have meetings and consultations before submitting an APA dossier to the tax agency. Receiving the dossier, it is the tax agency’s task to study the payers’ economic, trading and tax payment reports in order to come up with proper negotiation plans. When the two sides agree on price levels, provisions, and payment methods, they can then proceed to enter into agreements to apply the APA, Clavey and Wahl concluded. Arcotia Hasidimitris, a World Bank expert, said to realize APAs, the General Department of Taxation should build databases, gain experience in transfer pricing, and train officials to better understand about the field and methods to negotiate with tax payers. Hasidimitris suggested However, Yoshiyuki Nakagawa, a Japan International Cooperation Agency (JICA) expert, advised He warned International trade fair attracts businesses As many as 180 local and foreign businesses are showcasing and promoting their products and services at an international trade fair which opened in Dien Bien province on March 26. On display at nearly 400 stands are handicrafts, processed industrial products, household utensils, electronics, information technology, and fashions. The five-day fair offers participating businesses the chance to seek partnerships and expand overseas outlets, especially in The fair, held by the VNEXPO International Exhibition Fair Company, is part of the national key trade promotion programme for 2014. Policy recommendations for new growth model The proposal was made by Professor Tran Tho Dat, Vice Rector of the The Vice Rector of the However, after the economic recession in 2009, growth slowed down significantly and has yet to pick up much speed, he said. “Success may only be reached by shifting to a new growth model that is based on the efficiency of mobilising resources to improve industrial competitiveness, technological standards and productivity,” the Professor said. He also claimed that increasing links between domestic enterprises and multi-national groups is a sound way to reach this goal. At the seminar, economic experts also put forth a number of policy recommendations to further improve the role of foreign direct investment (FDI) and create a new sustainable growth momentum for Although According to Professor Kenichi Ohno from Japan’s National Graduate Institute for Policy Studies (GRIPS), despite a remarkable structure shift from agriculture to industry in the past two decades, Vietnam’s added production value only reached 19.7% in 2010, much lower than those of Thailand, the Republic of Korea (RoK), Malaysia and Indonesia. The country’s industrialisation remains modest compared to other Asian nations such as However, the Japanese expert also acknowledged the Vietnamese Government’s efforts in cooperating with the private sector to create higher internal value. Vietnam needs to have a FDI marketing strategy, build the capacity for domestic enterprises and increase collaboration between foreign and local firms while improving logistics services and industrial human resources, he stressed. Ho Chi Minh City’s GDP up 7.7 percent in Q1 Chairman of the municipal People’s Committee Le Hoang Quan made the remark at a recent meeting to review the city’s socio-economic and cultural situation in the reviewed period and discuss ways to implement tasks and key measures for the second quarter. According to a report presented by the municipal Department of Planning and Investment, the city’s consumer price index (CPI) in the first three months of the year increased by 0.18 percent from last December and 1.15 percent over the same period last year. The city’s budget collection reached 60.49 trillion VND (2.84 billion USD) or 26.49 percent of this year’s plan, a year-on-year surge of 16.07 percent. The service sector jumped 8.9 percent, making up 60.5 percent of the GDP while the industry and construction sector posted 6.1 percent growth, 38.8 percent. For the whole quarter, the city’s retail sales and service revenue was estimated at 152.65 trillion VND ( 7.17 billion USD), a year-on-year hike of 12.1 percent. The city granted investment licenses to 75 projects with a total registered capital of 690 million USD, up 19.1 percent from the corresponding period last year, thanks to the locality’s efforts in reforming administrative formalities and FDI attraction policies. However, the export turnover was estimated at only 6.34 trillion USD, a year-on-year drop of 7 percent as the crude oil exports fell 12.8 percent in volume and 3.3 percent in value. The drop also resulted from the city’s shortcomings and barriers in customs formalities, which shied some local enterprises to surrounding localities. At the meeting, Chairman Quan asked relevant agencies to focus on checking administrative formalities and putting forth remedies. In the second quarter, the city will focus on tackling local enterprises’ difficulties and supporting their production and business.- FDI inflow drops off in first quarter Newly registered and added foreign direct investment capital (FDI) tumbled to 3.3 billion USD in the first quarter of this year, down by 49.6 percent compared to the same period in 2013, according to the General Statistics Office. However, the country's disbursement of FDI in the first quarter rose 5.6 percent against the same period last year to 2.85 billion USD. During the period, processing and manufacturing was the most attractive sector to foreign investors, accounting for 2.33 billion USD or 69.9 percent of the country's FDI inflow. Real estate followed with 288.3 million USD, accounting for 8.6 percent. The Domestic experts recently forecasted that the strong flow of FDI into Chairman of the Vietnam Association of Foreign Invested Enterprises Nguyen Mai stated that the global economy was on the mend, and successful businesses were scurrying to find lucrative investments. Mai noted that universally, they considered However, the Government must improve FDI related policies, they said. Deputy Director of the Ministry of Planning and Investment's Foreign Investment Agency, Nguyen Noi, emphasised that drastic measures to improve the business environment would be undertaken. Most notably, measures would be adopted to simplify customs formalities and streamline procedures to establish businesses, he reported. The ministry is also gathering recommendations on the revised draft Law on Investment, which is expected to create a more transparent investment climate by amending and adding new administrative procedures and addressing the difficulties in gauging investment performance.- During a meeting of the National Steering Committee for Money Laundering Prevention and Control on March 27 in Hanoi, SVB Deputy Governor Vietnam Dang Thanh Binh said FATF lauded Vietnam ’s significant progress in improving its anti-money laundering and counter-terrorist financing regime. At its working session with Vietnam ’s authorised agencies in mid-February, 2014, FATF’s international cooperation review group said Vietnam has established the legal and regulatory framework to realise commitments set forth in its action plan regarding the fixing of deficiencies that the FATF had identified in October 2010, he said. Established in 1989, FATF is an inter-governmental body aiming to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of international financial system. FATF network has expanded to 34 member countries, two observation countries and five regional organisations. Seminar discusses green growth in Hai Phong A workshop to seek measures to promote green growth in port cities in Vietnam was held in the northern port city of Hai Phong on March 27. The event was jointly organised by the International for Union Conservation of Nature (IUCN), Mangroves for the Future (MFF) and the municipal People’s Committee. At the workshop, participants exchanged points of view on the matter, while discussing plans to implement the National Strategy on Green Growth in Vietnam and Hai Phong in the coming time. Attendees agreed that green growth is an important part of sustainable development as it contributes to reducing pressure on the environment and ensuring decent living conditions for people. According to Municipal Party Committee Secretary Nguyen Van Thanh, though Hai Phong’s economic growth has doubled over the last two decades, the city still needs to work hard to solve serious challenges caused by environmental pollution. He said the city is making every effort to make it become a green and modern city by 2020 by implementing a series of measures, which focus on restructuring and innovating growth models, applying advanced technologies in production, intensifying environmental protection, and pushing closer international cooperation in the field. IUCN and MFF are working closely with Hai Phong to seek nature-based measures to deal with environmental challenges and climate change facing the city. Hai Phong, the third largest city in Vietnam, plays an important role in the country’s sea transport network. It is striving to become a green port city by 2020. Livestock export potential untapped: experts Vietnam's livestock industry, while relatively well developed, has not been able to take advantage of its export potential, experts have say. So far, the industry has only succeeded in exporting small volumes of fresh and processed livestock products, they told the Thoi Bao Kinh Doanh newspaper. Nguyen Dang Vang, chairman of the Vietnam Livestock Association, said export livestock enterprises have mainly exported suckling pigs and salted duck eggs to Hong Kong and Malaysia apart from several varieties of meat to China via border trade. No official statistics on the volume of meat product exports are available, but Vang said that on average, Vietnam exports 35,000 tonnes of pork to China every year, accounting for 1 percent of the national total pork export. Vang said some enterprises have developed large-scale farms with a self-contained processing system, but most of their output is for the local market and only a small volume is exported. The Vissan Co. Ltd., one of the leading food processing and production firms in Vietnam, has set an export development strategy, but it is yet to execute it well, industry insiders say. Vissan General Director Tran Tan An said that his company has exported its products to some markets like Singapore, Australia, the Republic of Korea, Russia, and North America, but these did not make up big volumes. Their exports include frozen meat, processed meat, sausage, lean pork paste and canned meat, An said. Very few livestock industry products are being shipped to potential markets like Russia, the US and Australia, he said. So far, it has only sent grilled pork paste and lean port paste to these countries. Other key products of the company, including sausage and canned meat, can also be exported to regional countries, such as Cambodia and Myanmar, An said. A livestock industry expert who did not want to be named said that Vietnam has ample opportunities to export its products. He noted that the country used to export pork to East European countries. Now, markets across the world, particularly Japan and China, have a great demand for meat and egg products, he said. However, while the country has plentiful supply of these products, their quality and competitiveness present an export challenge, he added. In Vietnam, households constitute the main production unit in the livestock industry, supplying 90 percent of domestic meat consumption. There are few enterprises engaging in large-scale production with quality standards that can satisfy importing countries, the expert said. Vang noted that the production process in livestock enterprises is not self-contained, increasing costs significantly. The production cost of meat in Vietnam is 1.4 times that in the US. Hence Vietnamese meat products are less competitive in the international market, he said. An remarked that existing policies have failed to create favourable conditions for the livestock industry to increase its exports. Vietnam has been a member of the World Trade Organisation for a long time now, but regulations and standards related to veterinary care and food hygiene and safety in Vietnam are not in accordance with standards set by the importing countries, An said. The Thoi Bao Kinh Doanh report cited several industry insiders as saying the state should issue effective policies to encourage exports of fresh and processed meat and eggs. Without this enterprises would not have the incentive to renew the production process with modern technology and seek export markets while reducing the less profitable border gate trade, they said.- Shrimp prices rise as supply declines Shrimp prices have reached a record high since Tet (Lunar New Year) due to a lack of supply. This is a record-high price, said Tran Van Duong, a farmer who lives in An Minh District in Kien Giang Province. With this price, farmers can earn VND60-80 million ($2,900-3,800) per ha despite the low productivity of extensive farming methods they are now using. The price has increased because the harvest area is still small as this is only the beginning yield of this prawn crop. Nguyen Quang Minh, director of Kien Cuong Seafood in Kien Giang, said the company had not bought enough fish, and had only 20-30 per cent of its maximum productivity. The company had to switch to processing squid and other frozen fish to ensure jobs for workers, he added. According to several enterprises, the situation will continue for one to two months until farmers collect all their shrimp at the end of the harvest. The price for prawns in the Cuu Long (Mekong) Delta provinces of Kien Giang and Ca Mau has risen by VND10,000 ($0.47) to VND305,000-310,000 ($14.46-14.7) per kilo for a package of 20; VND250,000 ($11.86) for a package of 30; and VND230,000 ($10.9) for a package of 40. PM instructs good rice stockpiling in Mekong Delta Prime Minister Nguyen Tan Dung has instructed agencies to implement the government’s program to stockpile one million tons of winter spring rice in order to prevent further price drops in the Mekong Delta. He ordered the Ministry of Agriculture and Rural Development to work with the Vietnam Food Association and provinces in the Mekong Delta to supervise and speed up stockpiling according to regulations. They will report to the government in case of any difficulty receiving assistance. The Vietnam Food Association will choose businesses with good financial ability and warehouse system to stock the rice. The State Bank is ordered to instruct commercial banks to loan rice stockpiling companies. Commercial banks will provide loans at a preferential interest rate of 7 percent in six months beginning March 20. The State Bank will sponsor businesses with 100 percent of interest rate in the first four months. The Government’s rice stockpiling program began March 15 and will last until April 30. Rice prices have slightly increased right after the Prime Minister’s decision, according to Sai Gon Giai Phong Newspaper. It recently reduced again. Traders paid only VND 4,100-4,200 a kilogram of fresh rice, a decrease of VND200 over last week. Businesses have reduced purchase due to export demand fall. These businesses implemented the program too slowly. Some companies refused to purchase contracts to consume rice in large scale paddy fields. Docimexco Company contracted with Tan Hong District Cooperative, Dong Thap Province for consumption of 746 hectares of winter spring rice. However the company has refused to do so when 210 households in the cooperative reap their rice. A HCMC-based company has also not kept their promise to purchase 100 hectares of high quality rice in Binh Minh Cooperative, Thanh Binh District. The company wanted farmers to delay the harvest time until April but rice fields have ripened forcing farmers to sell at low prices. Vinacomin still optimistic about bauxite projects despite losses The Ministry of Industry and Trade and Vietnam National Coal and Mineral Industries Group (Vinacomin) have expressed optimism over Tan Rai and Nhan Co bauxite projects, saying they would fare well even though they cannot avoid losses in future. Quoting a report the ministry has sent to a supervision team of the National Assembly Standing Committee recently, Nguyen Thanh Son, director of the management unit for Red River Delta coal projects, said Vinacomin would have to pay the annual interest of VND600 billion each year for Tan Rai project alone in 2014 and 2015. Meanwhile, Nhan Co project needs more funding with an average interest rate of 6.31% per annum, higher than that for Tan Rai. “However, Vinacomin has drawn up plans to settle the loans,” the report said. Investment capital for the two projects has soared by 35-40%, with capital for Tan Rai rocketing from VND10.9 trillion to VND14.8 trillion and that of Nhan Co ballooning from VND11.3 trillion to VND16.8 trillion. Over 70% of the total amount is sourced from credit, of which around US$600 million is guaranteed by the Government. Tan Rai is expected to turn out 540,000 tons of alumina this year, 83% of the designed capacity, and 650,000 tons of alumina next year, its full capacity, the report said. Vinacomin is still optimistic about the situation although the alumina price is below US$300 per ton, lower than the earlier estimated US$370. The ministry and Vinacomin said prices would move up in near future. However, Tan Rai project is predicted to rack up losses of VND176 billion this year and VND252 billion next year and generate a modest profit of over VND9 billion in 2016. Between 2017 and 2020, the project may earn VND100-200 billion a year. Meanwhile, Nhan Co would suffer losses from 2015 to 2020, losing around VND500 billion a year. The ministry and Vinacomin insisted that the projects would bring about positive results if they got incentives in terms of environment protection fee, value added tax and natural resources tax. They also asked for a reduction of investment capital in a sludge holding system, which has promoted concerns about its safety. Son did not give comments on the report. However, Son told the Daily that he found shortcomings during the running of production lines in his survey at the two projects late February. Nhan Co certainly cannot meet the progress as expected by Vinacomin. Given losses until 2020, Nhan Co project should be suspended, Son added. DNV GL explores opportunities in maritime, oil, gas industries DNV GL, a global ship classification society and one of the world’s leading risk and sustainability service providers, is continuing hiring more employees and develop local expertise to tap new opportunities in this emerging market. The keynote was underscored by Henrik O. Madsen, group president & chief executive officer of DNV GL, last week at an official inauguration of the company’s new office in downtown HCMC. The event, which was attended by Crown Prince Haakon of Norway and Norwegian Minister of Trade and Fisheries Monica Mæland, was part of the program of the Norwegian trade delegation visiting Vietnam last week. Madsen said that DNV GL was represented at the big shipyards from Haiphong in the north of Vietnam to Vung Tau in the south, and had some 60 employees in Vung Tau and HCMC, with almost all of them Vietnamese nationals. “DNV GL will continue to employ and develop local expertise in Vietnam. Not least because we firmly believe that the shipbuilding industry will recover, and the oil and gas industry will develop further, in the years to come,” Madsen said. “With a strong base in the traditional maritime and oil & gas business, we are also venturing into new and exciting areas together with our many partners here in Vietnam.” He gave an example that DNV GL was in collaboration with the Vietnamese Ministry of Transport and other industrial players to develop sea transportation alternatives to make the domestic transportation system more sustainable and efficient. Gas was another area of interest for DNV GL in this market of more than 90 million people. “Vietnam needs natural gas to fuel economic growth. That implies a need to develop infrastructure fast. DNV GL is ready to support in any way possible, and we are already in talks with PV Gas on this matter,” Madsen said. “The growth of Vietnam’s oil and gas industry in recent years has been astonishing. We believe this growth will continue and will drive the need for more local expertise and knowledge.” Electricity is also an area of great potential for DNV GL. “With Vietnamese authorities now embarking on a major reform of electricity markets, numerous Norwegian businesses including DNV GL have experience and know-how that is highly relevant throughout the value chain,” Madsen clarified. Madsen described Vietnam as “a country with abundant opportunities for Norwegian businesses.” He recommended clearer framework conditions for international businesses in Vietnam as they together with a Vietnam-EFTA (the European Free Trade Association that is in negotiations and groups Iceland, Norway, Switzerland, and Liechtenstein) will be conducive to strengthened collaboration between Vietnamese and Norwegian businesses. DNV GL has been present in Vietnam since 1995 and has seen Vietnam as a strong emerging market for its services in the maritime and oil & gas industries. The new office in HCMC’s district 1 is expected to consolidate the operations of its business areas regarding maritime, oil and gas and business assurance under one roof. The open concept office is expected to foster closer collaboration and working efficiencies between the employees of both DNV and GL which merged in September last year. New central bank rule feared to hold back bank sector restructuring Legal changes provided in a new central bank circular are feared to have a negative impact on the progress of the already-slow banking sector restructuring, according to an updated report by Bao Viet Securities Company (BVSC). The central bank last week issued Circular 09/2014/TT-NHNN amending and supplementing a number of provisions in Circular 02/2013/TT-NHNN on classification of assets, and amount, method and use of risk provisions at local banks and foreign bank branches. Bankers have in recent days shared the concern expressed by BVSC in the report released on March 21. The report says whether banks will be able to get back on their own feet depends largely on the pace and efficiency of the restructuring of the banking sector, particularly on how Vietnam Asset Management Company operates and how Circular 02 is executed. The latest circular allows for a rescheduling of the implementation of a couple of provisions in Circular 02 until next year, a move which the report says will erode the market confidence in central bank policies. Circular 02 has brought hopes on stronger reforms of debt classification, risk management, settlement of bad debt, and improvement of transparency in banking sector operations. However, the central bank earlier decided to delay execution of this very circular for one year beginning on June 1, 2013. Circular 02 has been hailed as an effective tool to force banks to properly and sufficiently determine bad debt and thus paint a true picture of the health of each and every bank and the banking system as a whole. All this will lead banks to operate in line with international risk management standards and practices. The end result will be to help the banking system grow in a safe and sustainable way. The new Circular 09 is believed to result in bad-debt-hit banks feeling less pressure to sell their debt to the Vietnam Asset Management Company (VAMC). The actual goal of the establishment of VAMC is to transfer bad debt from banks to this firm and keep it there until the economy gets better, so whether VAMC operates as well as expected hinges largely on the exact and adequate assessment of bad debt in the banking sector. VAMC would use this assessment as a basis for drawing up a roadmap to buy bad debt from banks and issue bonds to fund such debt purchases. Once banks have the opportunity to delay restructuring debt and disclosing bad debt, VAMC will find it tough to buy bad debt from banks. Therefore, VAMV may resort to reports by the central bank’s chief inspector and banks themselves to map out debt purchase and bond issuance plans. A rescheduling or delay of implementation of regulations often leaves huge impact on businesses and banks. Last year, after Circular 02 came out, banks had to increase risk provisions and gradually scale up the ratio of risk provisions to total outstanding loans to have backup funds to cope with bad debt in an effective way. In fact, banks actively used their risk provision funds to deal with bad debt and sold certain bad debt to VAMC. By the end of last year 20 banks had sold VND38.9 trillion worth of bad debt to VAMC. Profits before tax at banks slid a staggering 29% year on year in the first quarter of last year but the situation improved a little bit in the second and third quarters just after Circular 02 was delayed from implementation for the first time. However, their pre-tax profits continued the downward spiral in the final quarter of last year, falling 10% versus a year earlier. The BVSC report notes the delay of the rule’s implementation would help ease the pressure from huge bad debt at banks, thereby allowing the banking system to have more time to improve their creditworthiness in compliance with Circular 02 and avoid a shocking upsurge in bad debt and a drastic plunge in profit. But the report stresses it would take far more time to restructure the banking system. Source: VEF/VNA/VNS/VOV/SGT/SGGP/Dantri/VIR |
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