Nov 9, 2012

Vietnam - Capital flow stops heading for Vietnam

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VietNamNet Bridge – Foreign portfolio investors have been hesitating to inject money in Vietnamese stocks. Most of the foreign investors have not succeeded in the Vietnamese finance market so far.

Head of the Market Development Division of the State Securities Commission (SSC) Nguyen Son said real estate, mining or finance and banking projects now need huge capital. Domestic enterprises have been moving heaven and earth to look for domestic and foreign capital.

However, Son admitted that it’s very difficult to seek foreign capital at this moment, saying that the situation would not be improved until the end of 2013.

General Director of Ban Viet Securities Company To Hai has noted that the capital flow seemingly does not flow to Vietnam any more. Foreign portfolio investors have been reluctant in pouring capital into Vietnam.

If comparing Vietnam with a conglomerate, one would see that the company has been operating badly recently, according to Hai. The bad debts have been increasing rapidly, businesses have been incurring heavy debts, the stagnation, and the economic growth has been slowing down.

When a company faces the risk of falling into insolvency, it needs restructuring. And in order to revive the company, it needs new financial resources.

It’s obvious that the global economic crisis has led to the sharp falls of the investment flow to Vietnam. However, experts believe that the inner problems have also been keeping foreign investors away.

The bank bad debt ratio is one of the biggest problems.

Citibank Vietnam’s General Director Brett Krause said that while the bad debt ratio is believed to be serious, big differences have been found in the bad debt reports from different sources.

He went on to say that the cross-ownership in the banking system has become so serious, which has made people confused.

Investors won’t inject money in the banks if they do not know who are the real owners of the banks, he noted. Meanwhile, the finance reports of the banks do not show in details the banks’ operation and business results.

A big problem existing is that Vietnamese people do not have confidence in the banking system. Though the number of banks in Vietnam is triple that in Thailand and double the Philippines’, only ¼ of the Vietnamese population have bank accounts, thus putting big difficulties for the watchdog agencies in implementing the monetary policy. The cash resources outside the banks still cannot be controlled.

Therefore, analysts believe that the confidence may be restored, if Vietnam only retains the healthy banks.

Sanjay Kalra from the International Monetary Fund IMF has noted that in order to ease the bad debts, Vietnam needs to change its thoughts. The institution is reportedly carrying out a “diagnosis program” to find out the most serious “diseases” of the Vietnamese banking system. After that IMF would make recommendations about the measures Vietnam should undertake to make the banking system healthier.

The second biggest problem that hinders the cash flow is the lack of a perfect legal framework.

Seck Yee Chung from Baker & McKenzie law firm has noted that despite the legal reforms undertaken recently in Vietnam, foreign investors still have been meeting a lot of barriers. Though the laws have been amended to create favorable conditions for foreign investors, there have been still problems in the law implementation in localities.

SSC has said that Vietnam plans to set up accounting and auditing standards close to the international practice by the end of 2013, which would serve as the fundamental for enterprises to make finance reports meeting international standards. To date, this remains a big barrier than prevents Vietnamese enterprises from accessing international capital sources.

Hong Phuc

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