10:17 | 17/10/2018 Finance - Banking
(VEN) - Vietnam Economic News’ reporter Minh Long spoke with Stephen Wyatt, CEO of JLL Vietnam, about how regulations and the current situation of the Vietnamese financial sector might influence the economy.
Following the State Bank of Vietnam’s Circular 06/2016 and Circular 16/2018, as of January 1, 2019 all commercial banks, branches of foreign banks, will have to reduce the current rate of short-term and medium-term loans from 45 percent to 40 percent. Do you think this will affect the economy in general and the real estate market in Vietnam in particular?
This decision is the next step in a series of consistent policy easing measures by the government and the State Bank of Vietnam to support economic growth. In the context of continued high credit growth and orientation will continue to push for the whole year, if officially applied, will help significantly reduce the pressure of mobilization with commercial banks. As a result, banks’ capital expenditures may be kept steady, supporting the objective of stabilizing interest rates, in order to achieve the objective of economic growth.
For a long time, businesses have prepared for themselves other sources of capital, no longer too dependent on bank capital, such as issuance of shares to increase capital, issue bonds or implement real estate projects in collaboration with foreign partners.
This change will play as a proactive macro-prudential measure which should help dampen the potential extremes of the current real estate cycle whilst reducing the probability of another crisis. While it is extremely difficult to isolate the impact of this measure, it will certainly have some moderate cooling effect on the real estate market. Even though the real estate market continues in an uptrend with moderate price gains in the affordable and mid-range segments, transaction volume remains stable. In the event of a cyclical slowdown, it also means that the government has some dry powder available should they wish to provide some support to the sector.
At present, commercial banks in Vietnam tend to raise interest rates (banks have increased to 8.5 percent for the 24-month term); the VND/US$ exchange rate is fluctuating with the uptrend of the US dollar; the stock market is struggling to break through. What do you think about the current development of the financial market in Vietnam?
According to Moody’s, Vietnam’s economic growth will be supported by factors such as increased competitiveness, strong trade flows, and strong consumption. But the risks of the banking system and the cyclical instability of the financial market will still be a major obstacle to the growth of Vietnam’s economy.
But now, credit growth has slowed down and credit allocation has improved, risk reduced. Since the beginning of the year VND has depreciated against US$ by 2.5 percent. This is the acceptable level in the context of US$ appreciation is very strong last time many other currencies also depreciated by 3-7 percent. In addition, profitability of the banking system got to a better degree. The first seven months of the bank’s listed profits with positive growth, increased by 30-50 percent.
The stock market in the past seven months has been adjusted due to the heat of last year. As of August 10, the VN Index fell by nearly three percent compared to the end of 2017. Of course, this is a low level compared to some countries in the region such as China, Indonesia, and the Philippines.
How do you forecast the Vietnamese economy in general and the real estate market in particular until the end of the year, especially in 2019?
Overall we expect to see the economy to continue to grow at a strong pace and outperform regional counterparts, however, trade tensions between the US and China, US rate hikes and geopolitical events, could slow down the pace of growth. Backed by strong economic fundamentals, the real estate market will continue strong activity for the remainder of 2018 and 2019. This property cycle is very different to previous cycles. The real estate market is longer focused purely on the residential sector, although, this still dominates much focus for the majority of developers in the country, due to favorable cash flows when compared to other sectors. This cycle is more diverse and we are seeing considerable activity in industrial, hotels and hospitality, office, and retail. In fact we are desperate to see more office development as there is currently a lack of supply in both major cities.
We are also starting to see strong interest in “alternative” sectors of real estate including healthcare, education and data centers. This is a positive step forward for the Vietnamese real estate and demonstrates the market is becoming more mature and no longer a one dimensional real estate market i.e. residential. A typical example is the considerable investment in the industrial and logistic sector, which can be considered as a medium to long term investment and therefore less affected by the cyclical nature of the property market.