Hanoi (VNA) - Since the beginning of this year the shares of many banks haveappreciated significantly, with the increases ranging from 8 percent to even 80percent.

Military Commercial Joint Stock Bank (MBB) has gained 18 percent and the Bankfor Investment and Development of Vietnam (BIDV), 15 percent. NVB is up 80 percentthough its liquidity is very low. CTG, EIB, and ACB are up 11.4 percent, 10 percent,and 9.2 percent.

Bank share prices saw sharper increases in the over-the-counter market, withVPBank going up 2.3 times to 40,000 VND. After alull of several years, bank shares have started looking up again, attractingnew funds into the market.  

Analysts are divided on the cause of the phenomenon. The HCM City SecuritiesCompany attributes it to an expectation among investors that banks’ bad debtproblem would be resolved with the coming into existence of the debt marketsoon.

In July 2015 the State Bank of Vietnam issued Circular No. 09/2015/TT-NHNN ondebt trading by credit institutions and foreign banks.

It does not cover debt buying and selling by the Vietnam Asset ManagementCompany or debts arising from loan contracts among credit institutions andforeign banks.

The circular is said to stipulate important legal conditions for establishing adebt trading market.

When a debt market is established, bad debts, which are now the biggest burdenon many banks, would be settled more easily.

Another reason is that at the ongoing National Assembly session the Governmenthas tabled for approval a resolution on bad debt settlement.

If it is approved, the Government will instruct relevant ministries andagencies to streamline legal regulations on restructuring ailing creditinstitutions so that settlement of bad debts is more effective.

Besides, many banks plan to increase their chartered capital by sellingstrategic stakes to foreign investors, and rumours have been doing the roundsthat the Government will increase the foreign ownership limit in banks as earlyas this year to hasten the overhaul of the banking system and attract overseasinvestments.

All this has been music to the ears of investors, who they haveenthusiastically bought bank shares, sending their prices rising.

Other analysts attributed the appreciation in the share prices to the positiveeffect of the strong credit growth, which is expected to improve banks’ bottomlines.

According to the National Financial Supervisory Committee, the banking sector’scredit rose by 6.8 percent as of the end of May, a record number for the lasteight years.

Nguyen Tri Hieu, a senior economist, said monetary policies would play a keyrole in growing the economy this year. So it would be necessary to increase thecredit growth target from the current 16 percent to 18-20 percent, he said.

For banks, 80 percent of revenues come from credit activities, and only the 20 percentfrom fee-based activities. 

SBVurged to rethink zero interest on dollars

On June 15 the US Federal Reserve raised the key interest rate on thedollar by a quarter percentage point, its third hike in six months,lifting the benchmark lending rate to a range of 1-1.25 percent.

The Fed foresees one additional hike this year, unchanged from its previousforecast. But it has given no hint of when that might occur.

These together with other international events including Britain’s EU exit andthe US’s new policies have created volatility in the international financialmarket.

But in Vietnam, the VND-USD exchange rate saw little change thanks to the StateBank of Vietnam’s flexibility in interest rate regulation and monetary policiesincluding cutting the interest rate on dollar deposits to zero.

The SBV’s efforts to keep the currency steady have paid off. For instance, on June 15 when the US raised its interbank rate, the Vietnamesecurrency barely noticed it, with the interbank rate going down a mere 8 VNDfrom the previous day to 22,695 VND to the dollar.

Banks quoted the dollar at 22,725 VND, 10 VND up from the previous day, beforebringing it down to 22,690-22,695 VND. On the informal market, the dollar wassold at 22,700 VND.

Thanks to this stability on the foreign exchange market, the central bankbought a large volume of foreign currencies to increase the country’s foreignexchange reserves to a record level. 

But experts still do not feel secure. The National Financial SupervisoryCommittee forecast the US rate hike, but said small rate increases each timewould not bring significant pressure on exchange rates.

But it warned that the exchange rates would be under pressure from the hightrade deficit in the remaining months of 2017, and the US’s plan to continueraising the dollar rates several times in the coming years.

According to some bankers, the trade deficit this year is predicted to be 3.5 percentof exports, or 7 billion USD, which would put pressure on exchange rate atcertain times.

They also fear that unforeseen movements by the Chinese yuan and Japanese yen,two very strong currencies, could affect the VND.

In fact, the dollar has shown some signs of appreciating against the VND, withthe State Bank of Vietnam raising the buying price of the dollar by 50 VND to 22,725VND on June 20.

Banksfollowed suit, increasing the buying and selling prices of the greenback by 50and 70 VND.

Earlier analysts had said it is time for the central bank to rethink its zerointerest rate policy since it does not help mobilise foreign exchange to servethe economy.

This is because the zero policy is “bleeding” foreign exchange and hittinginward remittances.

Meanwhile, the US has consistently been hiking its rates, widening the gapbetween the two countries’ interest rates.

Overseas Vietnamese are now happy to keep their dollars at home to enjoy thehigher interest rates instead of remitting them to Vietnam, resulting in astrong drop in remittances in recent times.

Data from the SBV’s HCM City branch showed that overseas remittances declinedby 500 million USD in 2016, and they are expected to drop further this year.

In the event, analysts have called on the central bank to rethink dollarinterest rates because the difference in the rates between foreign currenciesand the VND and the difference between the interest rates in Vietnam andforeign countries are important factors in attracting foreign currencies.

Some want the central bank to hike𝓰 the interest 💛rate on the greenback to 0.25-0.5 percent.-VNA