dong faces pressure of devaluation

24-Mar-2016 Intellasia | Bao Dau Tu | 6:00 AM Print This Post

Izumi Devalier, an economist at HSBC said that the dong is under a pressure to be devaluated which came from external factors.

Talking about the economic prospect of Vietnam in 2016, Izumi said that the economy of Vietnam has gradually been recovering from the crisis. In the short term, HSBC is optimistic about the economic growth of Vietnam. However, in the long term, Vietnam should be well-prepared to deal with challenges from external environment, in order to improve competitiveness.

According to Izumi, there are concerns regarding the reform in the future. For example, Vietnam has promoted equitisation of state-owned enterprises (SOEs) in 2015, but the equitisation process remains fairly slow and that has made investors to be hesitant. The reform of corporate sector is very important, as without reforming, Vietnam can hardly compete with other countries in the region and the world. Thus, the pressure to reform of Vietnam is huge.

Concerning the impacts which external factors will put on the economic situation in general and exchange rate in particular, Izumi said that Vietnam should not be subjective with the current stable economic growth situation. Although the US Federal Reserve (Fed) has made no new moves after the interest rate raise in late 2015, but close monitoring on market development is required.

In 2015, the dong was devaluated larger than the committed threshold of the State Bank of Vietnam (SBV). However, the exchange rate has later been stabilised thanks to the reforming measures of SBV which helped reduce the pressure on the dong. According to Izumi, the dong is likely to lose value in the near future.

Relating to interest rates, Izumi said that since inflation is forecasted to increase in 2016, it will put certain pressure on interest rates. Although the government and SBV expected interest rates to further decline, in fact, interest rates have begun to show an upward trend.

In Izumi’s point of view, the bad debt ratio of below three percent in 2015 is considered slightly lower than reality. If SBV does not curb this ratio, bad debts will be higher, and the volume of bad debts sold to the Vietnam Asset Management Company (VAMC) will increase in the near future. Izumi said that the important point is Vietnam should handle bad debts, rather than gather them without making moves to tackle. She added that Vietnam undergone a hot credit development period in 2008-2009 which led to bad debt increase. However, the monetary policy has been gradually tightened, and banks have promoted the sale of bad debts and lowered the bad debt ratio to the target set by SBV.

The banking sector has gradually been stepping up the restructuring and handling of bad debts. In addition, the credit growth objective has gradually been increased in order to meet the capital requirement of the economy. Nevertheless, according to Izumi, although the group of SOEs still accounts for high proportion of the credit development, the activities of this group are not as efficient as expected.


Category: Finance, Vietnam

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