The State Bank of Vietnam’s report on the monetary market in the first four months of 2006 showed mixed results: while total money supply (M2) and mobilised capital rose rapidly, loans struggled.

M2 and raised capital up

Total cash supply has increased by 8.6% so far this year, a sharp rise over previous years. The figure was approximately 5% for the first four months of 2005.

Commercial banks have reported a 9.6% increase in mobilised capital over last year-end, while the figure was 5.4% for the same period in 2005.

The increased mobilised capital showed that people still preferred depositing VND at banks. Stable exchange rates (up by 0.1% only in the first four months of the year) and attractive interest rates for VND deposits (10% per annum for 12-month terms, higher than the US$ deposit at 4.8%) have all prompted investors.

Outstanding loans up by modest 2.8%

By the end of April, 2006, outstanding loans had increased 2.8% over the end of 2005, a sharp decrease compared to the growth rate of 7.1% for the same period in 2005.

If the situation does not improve, the outstanding growth rate will reach 10% this year, thus fulfilling only 50% of targets. Banks kept cautious about funding real estate and automobile/motorbike assembly. They have focused on lending capital to fund securities trading deals. Thirteen million in securities has been reportedly mortgaged at banks to borrow VND751bil.

In addition, banks have injected large amounts of money into treasury bills while the Government is expected to raise considerable capital from commercial banks.

Market forecast

Current movements in the monetary market are expected to continue for the next couple of months and the HCM City authority is going ahead with its plan to issue VND2tril in city bonds. The plan on issuing VND900bil worth of corporate bonds by Electricity of Vietnam (EVN) will kick off in June or July.

The Bank for Investment and Development of Vietnam (BIDV) is preparing to issue VND3,250bil in long term bonds to raise chartered capital. Joint stock banks will also follow the move, as they are planning to improve their financial capabilities. The stock market will keep heating up as well, with several billion VND going into stocks.

In general, the monetary market will be bustling in the next few months as the demand for capital increases.

Source: VietnamNet