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“The central bank will manage its monetary policies in a manner that can bring down lending interest rates to help businesses,” Do Thi Nhung, deputy head of the monetary policy department at the central bank, told a conference in Hanoi Monday.

Vietnam’s bank lending has stagnated as companies contend with growing inventories and decreased demand. The economy needs to expand 6.5 percent in the fourth quarter in order to meet the government’s full-year growth target of 5.2 percent, Prime Minister Nguyen Tan Dung said last month.

The country’s inflation quickened to 7 percent in October from 6.48 percent in September. Consumer prices gained 0.85 percent from the previous month.

The central bank “should be very cautious of seasonal inflation” toward year-end in its policy management, Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council, said at the same conference.

The central bank is working with the ministries of trade, agriculture and construction to help companies reduce unsold inventories as part of measures to resolve bad debts at banks, Nhung said.

Liquidity at Vietnam banks now is at a surplus and the money market has “stabilized,” Nhung said. Still, banks face difficulties in raising long-term funds, she said.

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Seven banks have agreed to a debt-equity swap with Phuong Nam Seafood JSC, one of Vietnam's top 10 seafood exporters last year, as part of a plan to restructure the massively indebted company.

The firm's debts to the banks are estimated at VND1.6 trillion (US$76.7 million), more than five times its chartered capital.

News website VnExpress quoted a source as saying the company owed VND548 billion to Agribank Soc Trang as of August, and the others, from VND8 billion to VND341 billion.

It had to pay an estimated VND200 billion ($9.6 million) in interest annually.

The existing law limits an individual bank's stake in a company to 11 percent.

The new owners decided Monday to appoint Tran Van Tri, CEO of Tri Viet International Investment Corp., who helped make the deal, as the CEO of Phuong Nam, according to Vietnamnet.

Agribank Soc Trang said Tri Viet Corp. would also bring in a new board at Phuong Nam in early December.

Phuong Nam’s exports totaled $74 million last year, the ninth highest by a seafood exporter, but has been struggling with debts due to the economic downturn.

Its assets are estimated at VND560 billion.

Lam Ngoc Khuan, the firm's general director, has been in the US for medical treatment for over the year, leaving Huynh Phuc Que, a board member, to run it. It is not known when Khuan would return.

“Tri Viet Corp. has experience in successfully restructuring seafood firm Bianfishco," Vietnamnet quoted Tri as saying.

"The company believes it can turn around Phuong Nam, which faces bankruptcy.”

From May to October this year Tri was CEO of Bianfishco, another seafood company that was on the brink of collapse early this year. He only stepped down after the firm reported an improvement in its debt situation.

In mid-October Tri said Bianfishco's debts had fallen by nearly 50 percent from last year to $48 million.

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Police in the central province of Ha Tinh, without revealing details, recommended a charge of  "deliberately violating investment laws” at the local Ben Thuy Shipyard against Tran Quang Vu, 53.

They proposed a similar charge against four other officials, including one from Vinashin, saying their violation had caused “serious consequences.”

The four are Vo Quang Vinh, deputy general director of Vinashin Construction and Investment Company, Le Dinh Trinh, deputy director of the construction and investment consultancy firm VX, Nguyen Van Linh of the Vietnam Construction and Import-Export JSC, and Nguyen Cao Cuong of Nghe An Petroleum Company.

Vu used to be a director of Ben Thuy before he became CEO of Vinashin.

Ben Thuy is one of seven Vinashin subsidiaries where the Ministry of Public Security uncovered fraud worth more than $65.7 million and ordered the local police to investigate further.

Vu was sentenced to 11 years by the Supreme Court last August for his role in bringing Vinashin, officially the Vietnam Shipbuilding Industry Group, to the brink of collapse with nearly $4.5 billion in debts.

He and 10 other executives, including the chairman, were punished for causing losses of more than VND900 billion (US$43 million) by buying three old ships without government approval and importing old technologies for two power plants.

The chairman was sentenced to 20 years.

The vessels were transferred to state shipping line Vinalines, which is also in poor shape.

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Workers at the Vicem Ha Tien cement factory in the southern province of Binh Phuoc

A province in southern Vietnam plans to allow a local cement factory to pay part of its tax dues in cement instead of cash.

Experts have different opinions on the issue. Some laud it as a mutual-help initiative that should be encouraged, but others feel it would not be fair to other firms.

Binh Phuoc announced the plan in October, saying the unconventional policy will benefit both the province and the Vicem Ha Tien factory.

Under the plan, yet to be approved by the central government, the cement producer can clear some of its stockpiles while the province will have a cheap source of cement, sold without profit, to build roads in rural areas over the next three years.

Tran Viet Thang, general director of Vicem Ha Tien, said cement companies have supplied their products to many cities and provinces to build roads. Usually the producers receive their payment three to six months later.

Under the proposed deal with Binh Phuoc, Vicem will provide the province with between VND20 billion to VND25 billion (US$0.96-1.20 million) worth of cement a year and the money will be deducted from the company’s tax dues. The rest of the tax, including corporate income and value-added tax, will be paid as usual.

Local media reports say the company’s plant in Binh Phuoc usually pays VND40 billion in taxes every year.

“It is just a proposal now and both sides will have to look into many different aspects,” Thang said. “On our side, we are concerned with the tax and corporate laws. For instance, if we have already ‘sold’ the cement to the province and tax authorities still want us to pay our taxes in full, we’ll be stuck.”

It is also necessary to make sure that the cement sold at cost to the province will not find its way back to the market, he said. “If that happens, it will hurt sales of the company.”

The cement industry has been struggling with low sales amid a prolonged real estate crisis. Consumption fell 6 percent in the first nine months from the same period last year, to 34.6 million tons. That is equal to 62.9 percent of the target for 2012.

Cement inventories in the country rose 53.1 percent in the first ten months from a year ago, according to the General Statistics Office.

Economist Le Dang Doanh said there should be support for policies that can help businesses reduce inventories, ramp up production and create jobs for workers.

In particular, efforts to facilitate the development of housing and road projects and boosting the consumption of construction materials should be encouraged, he said.

Lawyer Tran Xoa from Minh Dang Quang Law Firm said although the proposed policy is unconventional, it does not mean the province is breaking any law.

There are always exceptions that can be made as long as a province or a company can come up with a good solution that the government can approve, he said.

But not everyone agrees.

Economist Pham Chi Lan argued that policies to support businesses cannot go against market principles. This is no longer a time in which people can just barter their goods and services without paying money, she said.

Besides, if the government wants to buy something, it is required to go through a bidding process, Lan said. “It is not fair if only one company can pay its tax in goods. It will likely lead to many problems later.”

“So I think things should stay the same – the company sells its goods and gets the money to pay tax.”

Some legislators also believe it is a bad call.

“It would be wrong if all companies facing difficulties are allowed to pay taxes with what they produce,” said representative Nguyen Ngoc Bao from the northern province of Vinh Phuc.

“This will set a bad precedent, and more importantly it really goes against market rules. Money and goods are different and people can’t just pay in goods.

“There must be other practical solutions to stimulate sales instead. If we try to solve the problem this way now, it’s not fair because it only benefits those involved in the deal.”

Bao said Binh Phuoc is trying to do a good thing here but it should buy cement from Vicem Ha Tien instead of receiving it in exchange for tax payments.

Representative Nguyen Ba Thanh from Da Nang said as tax revenues have to be collected in cash, Binh Phuoc Province will break the State Budget Law if it collects them in kind.

“If businesses bring in steel, bricks and tiles to pay taxes, what will the government do?” he asked.

“Maybe the province doesn’t have any other option, but I don’t think this is the right solution.”

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By Mai Phuong-Anh Vu, Thanh Nien News (The story can be found in the November 9th issue of our print edition, Vietweek)  

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Asia Commercial Bank staff prepare dong bank notes for a customer withdrawing cash at an outlet in Hanoi in August

A darker picture about the banking system is emerging, analysts say, as some commercial lenders report sharp drops in profits or even losses.

The time has come when banks can no longer hide their weaknesses, they add.

Asia Commercial Bank reported losses of VND520.67 billion (US$24.9 million) in the third quarter, compared to a profit of VND658.6 billion the same period last year.

According to the Ho Chi Minh City-based lender, often known as ACB, the loss was caused by its forex and gold trading business.

As the central bank has ordered a ban on all gold deposits beginning November 25, banks are trying to buy enough gold to repay their clients and close all accounts. That means banks will face losses if they had sold the deposits for cash earlier and now have to buy back the gold at higher prices.

ACB, which was also hit by a scandal in August that led to a temporary run on its deposits, said if gold prices continue to surge, it will face further losses in the fourth quarter.

Other smaller lenders have also posted disappointing results. Nam Viet Commercial Joint Stock Bank reported a 87.3 percent decline in third quarter net profit to VND6.57 billion ($315,360), while LienVietPostBank had a profit of VND67.6 billion ($3.2 million), down 20 percent from the same quarter last year.

Bankers attribute the drop in profits to the central bank ordering them to lower interest rates on existing loans. At the same time, they’ve had to set aside large provisions for bad debts, taking another large bite out of their profits.

ACB, for instance, earmarked a sum of nearly VND576 billion ($27.6 million) as bad debt provision in the first nine months, a whopping 90 percent increase from a year earlier.

Vietcombank, the largest listed lender by market value, had bad debt provisions of VND2.56 trillion ($123 million), up 52 percent from the same period last year.

Analysts say banks have apparently started taking bad debts seriously this year, announcing larger amounts of non-performing loans and provisions.

In fact, with the State Bank of Vietnam strengthening its efforts to restructure the banking system, it has become much harder for banks to hide their problems and bad debts.

Governor Nguyen Van Binh said October 7 that the monetary authority will crack down on violations by Vietnamese banks.

Not all lenders have admitted that they are in a bad situation. Several banks have still reported healthy numbers for the first nine months, raising some skepticism that they may have understated their non-performing loans.

The central bank said in a recent report that its inspectors have found many banks that previously reported profits had actually made losses. Some of them lost some or even all of their registered capital.

Most major banks saw the amount of loans that are likely to become uncollectible double from the end of last year, with some banks even recording a 50-fold increase, the report said.

Economist Nguyen Tri Hieu said banks typically earn more than 90 percent of their profit from credit activities. But this year, loans have expanded at a sluggish pace.

There is no bright prospect for banking profits now, since credit will not see a sharp growth in the last quarter, he said, adding that risks related to gold trading are also emerging.

According to Vietcombank Securities, the brokerage arm of Vietcombank, loans grew 2.77 percent in Vietnam as of mid-October. That compared to an 8.61 percent growth seen a year ago.

Professor Le Tham Duong of the Ho Chi Minh City Banking University said the fourth quarter is usually the time when companies ramp up production and need to take out more loans. However, the economy is still slowing down, so it will not be easy for banks to boost lending.

He said seeking profits outside their main business scope is not much an option for banks either, with both the stock and real estate markets remaining weak.

“So this year banks are facing more difficulties than advantages,” he said.

By Mai Phuong, Thanh Nien News (The story can be found in the November 9th issue of our print edition, Vietweek)  

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Vietnam’s cost advantage has drawn investments from US and South Korean technology companies, whose exports have overtaken garments and provided a bright spot for a government struggling to revive economic growth.

Intel Corp., Samsung Electronics Co. and Jabil Circuit Inc. are among a growing roster of companies setting up or expanding in Vietnam, spurring exports amid a global slowdown that has damped demand for goods from other Asian nations. Shipments of mobile phones and other electronics from Vietnam surged 91 percent in the first 10 months of the year to US$16 billion, making them the biggest source of export revenue.

The boost from global technology companies may help damp investor concern about the economy, which is set to grow at the slowest pace since 1999 amid credit downgrades and an undercapitalized banking system. Rising costs from Singapore to Thailand, as well as tensions between China and Japan may precipitate a manufacturing shift to Vietnam, which may help cut the trade deficit to its smallest in more than a decade.

“The country is realizing its cost advantage and is now becoming a rising assembly point for global technology firms,” said Vincent Conti, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. “This rapid growth has helped to diversify Vietnam’s trade profile and improve the structure of its vulnerable trade balance.”

The benchmark VN-Index rose 1.2 percent Thursday and has gained 8.4 percent this year after sliding 27 percent in 2011.

Market share

Vietnam’s shipments of electrical machinery, a category that includes modems, telephones and wiring sets, to the US climbed 58 percent in the first eight months of the year, according to the US International Trade Commission. By comparison, China’s sales to the US in the category rose 11 percent, Malaysia’s grew 4 percent, Thailand’s slid 5 percent and Indonesia’s fell 16 percent in the period, the data showed.

Garment exports to the US, Vietnam’s top market, reached $6.5 billion last year, making Vietnam the second-biggest supplier of apparel to the American market after China. Garment exports were $47 million a decade earlier, before a tariff- cutting trade agreement buoyed Vietnamese access to the US market and helped spark six years of Vietnamese economic growth exceeding 7 percent annually starting in 2002.

“Vietnam is taking technology market share from other Asian countries in the region,” said Than Trong Phuc, the Ho Chi Minh City-based managing director of technology-focused investment fund DFJ VinaCapital LP. “There is a combination of factors, but it’s primarily driven by labor costs.”

Doubled investment

Jabil, a Florida-based electronics manufacturer, plans to increase its total investment in a factory in Ho Chi Minh City that currently makes point-of-sales terminals and routers to $100 million from $50 million over the next three years, said Mike Matthes, senior vice president of global operations.

The company may employ as many as 5,000 workers in Vietnam within five years, up from 1,400 now, Singapore-based Matthes said in an e-mail. Jabil’s three top clients were Apple Inc. (AAPL), Cisco Systems Inc. (CSCO) and Research in Motion Ltd. last year, based on company filings.

Samsung plans to invest $700 million in a new mobile-phone plant in northern Vietnam, Yonhap News reported October 13. The plan marks the second phase of its investment in the country, with an annual production capacity at its first plant at 150 million units, Yonhap News reported.

Intel, Nidec

Production at Intel’s $1 billion factory in Ho Chi Minh City is “ramping up smoothly,” said Rick Howarth, general manager of Intel Products Vietnam.

Intel opened its assembly and testing plant in Ho Chi Minh City in 2010, the largest such facility for the world’s largest semiconductor maker.

“We’re looking to increase the complexity of work that’s being done in Vietnam,” Howarth said. “Over time we can expect to see an ecosystem of high-tech design and manufacturing grow in Vietnam, increasing the country’s relevance in the industry globally.”

Japan’s Nidec Corp., the world’s biggest maker of disk- drive motors, said in June it would open its seventh Vietnamese factory in Ho Chi Minh City by the end of the year. Its workforce in Vietnam’s biggest city will reach 25,000.

China reliance

Vietnam is also benefiting from a move by manufacturers to diversify away from China, said Alessandro Parimbelli, a Bergamo, Italy-based senior vice president of global business units at Jabil.

“We’re trying to offer alternatives to our customers for whom some products are made in China, who whether because of the currency’s appreciation or for other reasons, don’t want to have all their eggs in one basket,” Parimbelli said. A “much cheaper” cost structure in Vietnam also contributed, he said.

The Vietnamese dong was little changed as of 2:32 p.m. Thursday in Hanoi. It’s also little changed against the US dollar since it was devalued by about 7 percent in February last year. China’s yuan has gained 5.6 percent in the same period.

Vietnam’s tech exports are surging in an economy that Prime Minister Nguyen Tan Dung said would struggle to grow even 5.2 percent this year, the slowest pace since 1999. Exports are helping to offset slowing consumer demand domestically. Retail sales growth slowed to 17.1 percent in October from a year earlier, the eighth straight month the figure has declined.

Moody’s Investors Service cut Vietnam’s debt rating on September 28 for the first time since 2010, citing the country’s growth prospects and banking system weaknesses.

Narrowing gap

The higher export revenue is helping narrow Vietnam’s trade deficit. The nation has posted a shortfall every year since 1993, peaking at about $18 billion in 2008, according to data from the General Statistics Office in Hanoi. In the first 10 months of the year, the deficit totaled $357 million, compared with $8.9 billion at the same time in 2011.

“The improvement is basically a sustainable one,” said David Kadarauch, the Ho Chi Minh City-based managing director of investment banking at Saigon Securities Inc. “Tech is part of the story, as is overall strong foreign investment in export-oriented manufacturing.”

The smaller deficit represents an improvement in one of Vietnam’s key risk indicators, Standard & Poor’s said in a statement in October.

“The days of very large trade deficits in Vietnam seem to be over,” said Johanna Chua, the Hong Kong-based head of Asian economic research at Citigroup Inc. “Part of that is due to weaker imports, but Vietnam is also benefiting from a structural transition. A lower trade deficit means that concerns about foreign-exchange risks should dissipate and reserves should be more ample, which improves confidence in the currency and in overall macroeconomic stability.”

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  Employees of a bank in Hanoi unload bags containing bricks of dong bank notes sent in from the central bank. Photo: AFP

Nguyen Thu Ha’s heart sank yet again.

The 22-year-old graduate of the Banking Academy, also proficient in English, had just completed scanning newspapers for vacancies at an employment agency in Hanoi’s Cau Giay District last week, and failed to find a suitable job.

It had been a year since she graduated.

Ha used to work for a real estate firm. However, she lost the job after working there for just three months when the firm shut down, unable to survive the frozen property market.

Since then, Ha has sought help from her relatives and friends to find gainful employment even as she scoured papers and the Internet. So far, she has failed.

“It is very difficult to find a job in the financial and banking sector. I have sent my CV to dozens of companies for over a year, but have not got any results,” she said. “I dare not hope for a job in a bank as I used to. I would be happy even if I could work as a shop assistant or cashier.”

Ha is one of many people finding it hard to get jobs in the banking and financial sector amidst the economic slowdown.

She said over half of her university classmates are either jobless or have taken work not in line with their academic qualification.

Experts attribute the students’ plight to an oversupply of economic university graduates.

Universities specializing in finance and banking had become very attractive to students a few years ago as the sector offered many job opportunities with high salaries for graduates. Many commercial banks were expanding their networks to serve the increasing demand for capital as the local stock and financial markets expanded rapidly between 2005 and 2007.

“At that time, the commercial banks’ demand for staff was very large. Many of them announced recruitments every quarter, or even every month,” said an industry insider.

As of late 2010, the banking sector had over 175,200 employees, 2.59 times the 2000 figure, said Tran Huu Thang, deputy head of the staff management department under the State Bank of Vietnam.

To meet the increasing demand, many universities and colleges opened economic, financial and banking departments. At present, 248 out of 416 universities and colleges nationwide offer economic, financial, banking, accounting and business management training, according to the University Education Department under the Ministry of Education and Training.

Vu Van Hoa, vice president of the Hanoi Business and Technology University, said: “It would be very difficult for students specializing in financial and banking sectors to find jobs in the next one or two years, unless we review our training plans.”

Furthermore, despite a large supply of students majoring in economics, very few are qualified enough to meet the requirements of employers.

Luu Trung Thai, former deputy general director of the Military Bank, said: “Many newly-graduated students do not have necessary skills and knowledge to work at banks.”

He said universities should review their curricula and help students quickly meet requirements of firms when seeking jobs.

According to a recent survey conducted by the Institute of Manpower, Banking and Finance and management consulting firm HayGroup, the number of university graduates in Vietnam who major in economics, banking and finance is estimated to be some 32,000 in 2013, but only 20,000 will be able to find work in financial agencies or banks.

The job shortage is also due to the fact that commercial banks are experiencing slower growth and undergoing a restructuring process, leading to smaller demand for manpower.

According to Vietnamworks, the largest online recruitment solution provider in the country, the accounting and financial sector has seen lower online recruitment demand over the last two years. It used to be among the top sectors with the highest demand for online recruitment between 2006 and 2007.

Thai said banks now are reducing their spending as they restructure to improve operational efficiency. Cutting the staff is one of the measures to lower costs.

Last week, an anonymous email was sent to the general director of the commercial bank SeABank and a local newspaper, accusing the bank of cutting workers en masse and forcing them to resign “voluntarily,” to avoid compensating them for terminating labor contracts prior to their expiry, according to local newswire VnExpress.

The author of the email said the bank’s human resources department has claimed the bank is in a bad financial situation and restructuring its business, so it has cut staff.

SeABank has said it has not fired workers, but that some have resigned for personal reasons.

Room for hope

A lecturer at an economics institute provided a more optimistic view for the students.

He said students who specialize in banking and finance will still have many job opportunities in the future. They might not necessarily work in banks or financial institutions, but could find work in insurance, which is one of the faster developing sectors with a large manpower demand in Vietnam, he said.

In the first period of restructuring, banks may downsize staff, causing some difficulties for job seekers. However, banks can still recover and develop in the next one or two years after the restructuring, raising their manpower demand, he said.

“Thus, difficulties for finance and banking university graduates are temporary. They will still have great opportunities after the economy recovers and the banking sector rebounds in the next few years,” he said.

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By Ngan Anh, Thanh Nien News (The story can be found in the November 2nd issue of our print edition, Vietweek) 

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A subdued domestic market and reduced global trade flows have continued to take a toll on manufacturing in Vietnam as production has fallen for the seventh month in a row this year, according to HSBC.

The manufacturing purchasing managers’ index (PMI) released Wednesday by HSBC and Markit Economics fell to 48.7 in October from 49.2 the previous month, moving further away from the neutral 50 value.

The gauge covers around 400 companies. An index below 50 indicates a contraction.

HSBC noted that the rate of contraction remained marginal overall and if compared to July, it was “markedly slower.”

“New orders and new export business both fell for the sixth consecutive month. The decline in new export orders was the steepest in the survey's history, as companies reported reduced demand from clients in China, Japan and Taiwan,” the bank said in a statement.

Inventories of finished goods were broadly unchanged for the fourth straight month, it said, adding that average purchase prices rose for the third month in a row, reflecting higher costs for foodstuffs, fuels and transportation.

“Weak global and domestic demand continues to weigh on the manufacturing sector; new export orders contracted at the sharpest pace since the series began,” said HSBC economist Trinh Nguyen.

“The rise of input costs did not help, as manufacturers could not pass off the costs to consumers due to sluggish demand. The output index level, although still signalling contraction, is stabilizing at close to fifty suggesting that the economy will likely recover towards the end of Q4.”

Reuters reported Thursday that recent data from Asia was encouraging, with China’s economy, the motor of global growth in recent years, appearing to have gathered speed in October. The reading of the Chinese HSBC PMI rose to 49.5 in October, the highest since February.

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Vietnam’s public debt is set to rise slightly to 55.4 percent of gross domestic output this year, which the government says is still a “safe” level compared to other countries.

The debt, including all central and local government debts and government-guaranteed loans, is projected to hit VND1,600 trillion (US$76.8 billion) by the end of the year.

Of the total amount, central government debts are estimated at VND1,200 trillion, while loans backed by the government total VND348.8 trillion, according to a government report sent to legislators this week.

Previous data showed that public debt in Vietnam was 54.6 percent of the country’s GDP last year, down from 57.3 percent in 2010.

While debt is still rising, the government report maintained that the level is "safe." The goal is to keep it from exceeding 65 percent of GDP over the next three years.

Vietnam’s external debt is projected to reach nearly VND1,300 trillion ($62.4 billion) this year, but the government said most of the debt is long-term loans carrying low interest rates.

Japan is now Vietnam’s largest creditor, with 17 percent of the total foreign debt, followed by the World Bank and the Asian Development Bank.

But the government admitted that things are not going well with government-guranteed loans taken out by state-owned companies. At least five cement plants and two paper production projects financed by these loans are having difficulties paying foreign creditors, which means the obligation could be passed on to the government.

As of the end of last year, the government had guaranteed loans worth $5.5 billion for the electricity sector, $1.7 billion for aviation, $1.2 billion for cement projects, and more than $460 million for the oil and gas industry.

The Asian Development Bank said in a report last month that the outlook on public debt in the region is generally “benign.” Public debt ratios rose by an average of 5 percent in 2009 due to ambitious stimulus packages in emerging Asia, but the region’s indebtedness is projected to fall below pre-crisis levels in the near future, the bank said.

Public debt has become a concern for many economies amid the persistent sovereign debt crisis in Europe.

According to data from the International Monetary Fund, Japan has the highest public debt ratio in the world, with public debt worth 229 percent of its GDP. Greece is ranked second with a ratio of 163 percent.

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