Excess cash with individual investors, who were unable to spend it during the social distancing, is driving the local stock market, says the chairman of Saigon Securities Inc.
SSI chairman Nguyen Duy Hung told the firm’s recent annual general meeting that the stock market, an indicator of economic health, “seems far more optimistic than warranted”.
“If analysts sit down now to predict how the economy will be, and what is going to drive its growth, they will see many problems. Government stimulus packages, which are the foundation of the economy’s recovery, are having difficulties being disbursed. The stock market, however, is benefiting from surplus cash flow in the economy,” he said.
This excess cash, he argued, is basically dead money which people were unable to spend during the country’s social distancing (three weeks in April) due to the coronavirus pandemic, while other asset classes are unattractive now.
Hung added: “If people would just board planes and head to resorts, hotels and industrial parks, they will see that the real situation is far worse than what the stock market is depicting.”
With stocks becoming the favored asset class, there was an explosion in the number of new accounts by F0 investors – as SSI calls people opening trading accounts for the first time – he noted.
According to the Vietnam Securities Depository, in March, at the height of the Covid-19 crisis, for instance, securities companies opened 32,000 new domestic accounts, the highest monthly number since the market peaked in April 2018.
So financial analysts “cannot look at what is currently happening [on the local bourses] to make long-term forecasts,” Hung said.
SSI said for the full year it expects profits to fall 20 percent year-on-year. The firm stated that it has adjusted whole-year profit targets down to reflect its analysis that the stock market has been overoptimistic.
Vietnam’s stock market had been one of the best performing globally, recovering over 31 percent between April and May as the country has gone without community transmission of the novel coronavirus since mid April.
It came third to Japan’s Kospi index, which rose 39.2 percent, and the U.S.’s S&P 500, which rose 36.1 percent, according to data from Bloomberg.
SSI’s pre-tax profits for the first half is expected to reach VND660 billion ($28.53 million), up 30 percent year-on-year.
The brokerage reported profits of VND1.01 trillion ($43.56 million) last year, down 38 percent against 2018 due to the global uncertainty caused by the U.S.-China trade war.
Bad debts get worse
Even after launching a credit package worth hundreds of trillions of dong to support businesses, bad debts will still increase this year.
From August 15, 2017 to the end of March 2020, the banking system settled VND299.8 trillion worth of bad debts in accordance with Resolution 42. However, analysts believe that bad debts will increase as businesses’ operations are at a standstill.
Anticipating high risks, commercial banks have to increase provisions against risks and step up the sale of collateral to collect debts.
Under the plan, 2020 is the deadline for the settlement of bad debts sold to VAMC. If the bad debts still cannot be settled, banks will have to buy the debts back for settlement.
Nguyen Duc Thach Diem, CEO of Sacombank, said the bank aims to settle VND11 trillion worth of bad debts this year and believes the goal is within reach.
Meanwhile, SCB is offering to sell 7 real estate assets worth several billion dong to hundreds of billion of dong. LienVietPost Bank has also put mortgaged assets into auction with starting prices from hundreds of millions of dong to hundreds of billions of dong.
|Banks’ Q1 finance reports showed that the third-, fourth- and fifth-group debts (fifth-group debt is the worst debt which may be irrecoverable) have increased rapidly. Kien Long Bank reported that the bad debt has increased by 5.7 times to VND2.293 trillion, from 1 percent to 6.62 percent.|
According to Nguyen Quoc Hung, director of the Credit Department, around VND1,800 trillion, or 23 percent of total outstanding loans, has been affected by the epidemic.
Commercial banks report that they had implemented 40-50 percent of yearly plans by the end of June. However, credit has been growing very slowly.
Bankers said that more mortgaged assets would be put on sale in the time to come, and banks’ profits will decrease sharply because of high provisions against risks.
Nguyen Dinh Tung, CEO of OCB, said businesses are struggling to stop the decline and many of them may go bankrupt, so the bad debts will increase.
Putting mortgaged assets for sale is clearly the best way for banks to collect debts. Nhip Cau Dau Tu quoted some analysts as saying that it is very difficult to find buyers for assets with high value, VND30 billion or more.
To date, commercial banks have committed credit package of VND300 trillion which aims to help businesses overcome the epidemic.
“The policies on restricting debts and extending debt payment deadlines have helped prevent the bad debts from increasing,” said Can Van Luc, chief economist of BIDV.
However, even with the big credit package, bad debts will still increase.
Banks’ Q1 finance reports showed that the third-, fourth- and fifth-group debts (fifth-group debt is the worst debt which may be irrecoverable) have increased rapidly. Kien Long Bank reported that the bad debt has increased by 5.7 times to VND2.293 trillion, from 1 percent to 6.62 percent.
VN struggles to have 5,000 science and tech firms this year
HÀ NỘI — Việt Nam would have difficulty achieving the goal of having 5,000 science and technology enterprises this year under the 2011-20 science and technology development strategy.
The Ministry of Science and Technology has proposed many solutions to reach this goal, including the Decree 13/2019/NĐ-CP on developing science and technology enterprises effective from March 20, 2019 with better incentives and opened mechanisms.
It has also improved policies and institutions, including amendments of some laws on investment, enterprises and corporate income tax and regulations supporting incubation and development of science and technology enterprises.
The system of mechanisms, policies and regulations on development of science and technology, and creative innovation is synchronised to ensure efficiency in supporting the development of science and technology enterprises and using results of State-invested research on science and technology.
However, Việt Nam now has about 500 science and technology enterprises, reaching 10 per cent of the target.
The ministry has found many barriers to having 5,000 science and technology firms this year.
Phạm Đức Nghiệm, deputy director of the ministry’s Department for Development of Market and Science and Technology Enterprises, said that the number of enterprises interested in science and technology is not high and programmes as well as disbursement of capital for the development of science and technology firms are also limited.
Recently, the ministry has reformed mechanism on investment to create more favourable conditions for businesses in becoming science and technology firms but they still need to renew themselves, Nghiệm said.
Science and Technology deputy minister Bùi Thế Duy said the failure to achieve this goal firstly is the responsibility of the science and technology ministry because its communication on the target is limited.
“The ministry has not cooperated with media agencies to encourage development for science and technology enterprises as well as incentives for those enterprises,” Duy told the Voice of Việt Nam.
Meanwhile, Nguyễn Hồng Phong, general director of the Tiến Nông Agriculture Joint Stock Company, one of the first science and technology companies in Thanh Hóa Province, said it has had a difficult beginning to be recognised as a science and technology company.
Since its establishment in 1995, the enterprise has identified science and technology as a foundation for its development and built a research and development (R&D) centre with modern equipment and technology.
With this R&D centre, the company has implemented many research projects to produce high-quality farming products to increase its revenue and output in farmers’ production.
However, to become a science and technology company is not easy, especially for small and medium sized enterprises like the Tiến Nông, according to Phong. The State has many incentives to support the development of science and technology companies such as tax, land and credit, but whether they receive these incentives or not is another issue.
Besides that, Lưu Hải Minh, chairman of the Nhật Hải New Technology Joint Stock Company with a certificated science and technology enterprise, said the right of using a State-invested scientific and technological research project has the same value as land use rights.
An enterprise could mortgage its land use right to get loans for development but is not permitted to mortgage the use right of State-invested scientific and technological research to have capital for producing new products, he said. —
More loans to enjoy restructured repayment periods
HÀ NỘI — The State Bank of Việt Nam is drafting amendments to a circular that restructures repayment periods, waives and reduces interest rates and fees and maintains debt classification to support people affected by the COVID-19 pandemic to ensure more receive the support.
According to the draft circular which was recently made public for comments, more loans could have repayments postponed until after the end of this year.
Restructuring of the repayment periods and maintaining debt classification would be provided to loans which required repayments to be made from January 31 to December 31, instead of from January 31 to three months after the Prime Minister announces the pandemic is over.
The draft circular also allows credit institutions and foreign banks’ branches to restructure repayment periods and maintain debt classification for loans disbursed from January 23 to April 24. Under Circular 01, restructuring of the repayment periods and maintaining debt classification were only provided to loans disbursed before January 23.
According to Cấn Văn Lực, chief economist of the Bank for Investment and Development of Việt Nam (BIDV), expanding loans subject to the circular’s supports was essential to ease the financial burden for companies affected by the virus.
Financial and banking expert Nguyễn Trí Hiếu expressed concerns over maintaining debt classification.
Hiếu said problems would arise if enterprises went insolvent but their debt classification stayed the same, which would not fully reflect the risks as some loans were becoming non-performing.
Hiếu said it was necessary to raise details for classifying restructured debts which were not repaid following the restructured payment periods, which would help prevent risks for the financial market and improve the efficiency of the policy.
According to the State Bank of Việt Nam, credit institutions restructured payment periods for nearly 260,000 customers with total outstanding loans of nearly VNĐ180 trillion and reduced interest rates for 421,000 customers with total outstanding loans of VNĐ1.3 quadrillion. Credit institutions also provided new loans worth VNĐ1.1 quadrillion to 240,000 customers with interest rates 0.5-2.5 percentage points per year lower than the pre-pandemic period. —
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