Vietnam, an emerging market that once shined in the first half of this year, is now in troubles internally and externally.
Over a week, Vietnam's Saigon Commercial Bank suffered a run by depositors because the bank was rumored to be related to a real estate group recently investigated for fraud.
On October 8, Vietnamese police announced the detention of Truong My Lan, chairman of the real estate group Van Thinh Phat Holding Group, and other senior companies, saying the company was suspected of illegally issuing bonds between 2018 and 2019, raising trillions of Vietnamese Dong .
After that, rumors about Saigon Commercial Bank's case were circulated on Vietnamese social media, triggering a run against the fifth largest bank in Vietnam.
To appease the market and depositors, Vietnamese regulator said on Saturday that it would conduct a "special review" of the private bank, while Saigon Commercial Bank raised the interest rate to re-attract depositors.
Although this incident is temporarily under control, also exposes depositors’ lack of confidence in the financial industry and the challenges that Vietnam’s economy is facing.
Vietnam's economy is expected to grow by 8% this year, making it one of the world's highest growth economies. But at the same time, Vietnam's economy, households and businesses are also rising. Miguel Chanco, chief economist at emerging Asia at Pantheon Macroeconomics, a research firm, said that while Vietnam's financial system has a "solid foundation", the vulnerability remains.
Before the outbreak of the new crown epidemic, capital adequacy ratio has been steadily declining, and the capital adequacy ratio of most state-owned banks remains particularly low, while household debt has risen sharply in the past 10 years or so.
It’s no surprise that people’s confidence in the industry is still somewhat fragile, as can be seen by the flocking deposits.
On Monday, on the first trading day after Saigon Commercial Bank was "specially reviewed", the Vietnam VN benchmark index fell 2%, Vietnam JSC Foreign Trade Bank fell as much as 3.2%, while Tianfang Bank and Vietnam Investment Development Bank fell by at least 2.4%.
In 2012, the lending boom and poor regulation led to a surge in bad debts in Vietnamese banks, arrested senior bank executives and plummeted the stock market. At that time, the non-performing loan ratio of was 17%.
Although banks have done a lot of work to clean up the system since then, they still cannot completely eliminate depositors' distrust of the bank.
Last week, SSI Securities, India's second largest brokerage firm, said in a note to investors that the latest investigation highlighted the "lingering risks" of bond misconduct in Vietnamese banks and real estate markets.
Although recent market adjustments partially reflect this news, we believe negative sentiment will persist, especially when a large number of corporate bonds will expire in 2023-2024.
On the other hand, as the US dollar continues to strengthen, the Vietnamese central bank announced today that it would expand the trading range of the Vietnamese dong against the US dollar from the previous 3% to 5%, indicating that Vietnam is willing to tolerate the further weakening of the Vietnamese dong.
Since the beginning of this year, in order to stabilize the local currency, the Vietnamese central bank has sold the US dollar many times and announced a significant hike in interest rates last month 3100 basis points. The Vietnamese Dong-dollar exchange rate has fallen by nearly 7% so far this year.
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