The bad debt ratio of the total outstanding loans of the banking system rose from 2.5 percent in late 2010 to 3.5 percent in September 2011. The ratio is believed to increase further to reach the highest peak in 2012. Hopefully, the bad debt would not destroy the banking system structure, but would help speed up the bank restructuring process. The expectation has been based on the fact that most of loans have collaterals and underground assets valued at 70 percent of GDP.
This is a part of the Vietnam October Update report by Dragon Capital provided to foreign investors.
Dragon Capital could not imagine that after the October’s bulletin, the real estate market began “shuddering” in early November when the developers a lot of real estate projects had to slash the sale prices sharply, in an effort to boost sale to get back money to pay bank debts.
The real estate firms’ shares have immediately decreased after the moves by real estate developers to slash the sale prices. The leading shares in the investment portfolios of Vietnam Property Fund, Vietnam Enterprise Investments Limited, Vietnam Growth Fund managed by Dragon Capital, such as HAG, SJS, SCR, BCI, DIG have been bartered away.
After real estate firms’ shares, not banks’ shares have been sold in masses in the stock market. Despite the good business performance and the high growth rates of banks, securities investors still have been rushing to sell bank shares out. Foreign investors, especially ETFs, are the most persistent net-sellers of bank shares.
In fact, foreign investors once also sold bank shares in masses. However, analysts said, at that time, they sold shares because they hoped they would be able to buy back shares at lower prices.
However, things prove to be different now. Foreign investors try to sell shares now, and it seems that they would not come back.
In the reports prepared for the investors outside of Vietnam, some finance institutions believe that the Vietnamese stock market has not bottomed out yet, for two main reasons. They emphasized that the local currency has still been put under a hard pressure, while the inflation rate would not be lowered to one-digit level in the next year.
Meanwhile, most investment funds have been scheduled to be closed the next year. Preliminary statistics show that at least foreign investment funds would have to withdraw about 25 trillion dong from the Vietnam’s stock market. The NAV of most of the funds is now just equal to 50 percent of the initial investment value.
In order to repaper for the capital withdrawal process, some investment funds have been selling securities since the beginning of the year. However, the liquidity on both the Hanoi and HCM City bourses has dropped to the level just equal to ¼ of that at the same period of the last year. On some days, the trading volume of the HCM City bourse is just 10-15 million dollars. With such a low liquidity, the process of withdrawing capital would be long.
Meanwhile, the foreign portfolio investment flow to Vietnam has nearly stopped. If not counting on some special cases, where capital has been poured to Masan Consumers, Vinamilk, or the corporate bond issuances on the international market of HAG, investment funds have not attracted any more capital over the last two years.
VinaCapital or Dragon Capital have announced the possibility of calling for 100-150 million more for private equities. However, there are two noteworthy things here. First, this is just assumption. Second, the funds may disburse money in neighboring markets such as Laos and Cambodia, where the stock markets have just opened or is going to open in some days, with very open regulations to foreign investors.
Source: TBKTSG
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