In June 2017 the Việt Nam National textile and Garment Group (Vinatex) listed on UPCoM under the ticker VGT at VNĐ13,500.

 

After remaining steady for more than six months, the price of VGT shares suddenly soared by 70 per cent to VNĐ19,400 last January. But it soon gave up all its gains and plunged to VNĐ11,000.

 

A similar fate has befallen many other textile and apparel companies too.

 

Việt Tiến Garment Corporation (VGG) was for a long time trading at the highest price in the industry. But it has also been on a downward trend for the last three months.

 

VGG is now being traded at around VNĐ49,200, down by 20 per cent from January.

 

The price of  Phong Phú Corporation (PPH) fell to VNĐ20,000 and has remained there since listing on UpCoM last August with a reference price of VNĐ25,000.

 

This is a paradoxical situation since most textile companies are doing pretty well on the business front.

 

An analysis by Đầu Tư Chứng Khoán newspaper found that only one of the 20 largest listed companies reported a loss in the first quarter of this year. Most of the rest achieved high growth rates.

 

The Việt Nam Textile and Apparel Group is a typical example: It achieved an estimated profit of VNĐ178.4 billion (US$7.85 million), up 41 per cent year-on-year.

 

Many of them even achieved 100 per cent growth, including Nhà Bè Garment Corporation, (204 per cent) and Hà Nội Textile and Garment Corporation(Hanosimex, 181 per cent).

 

So why this paradox?

 

Some market observers thought this was simply because investors are now obsessed with banking and real estate stocks to the exclusion of all else.

 

Others said textile shares are not fancied because of the industry’s low profit margins.

 

Besides, they are facing huge competition from cheap imports from China, the Philippines and Bangladesh.

 

While Việt Nam’s accession to the CPTPP will indeed offer a huge advantage to domestic players, they need to meet many conditions for that. One of them is that textile and garment producers must prove the origin of all the materials used to make a product. Not many Vietnamese textile companies can do this.

 

Constant increases in input costs and the need to embrace technology 4.0 to reduce them are other issues.

 

However, experts still expect textile and garment companies to grow solidly because globally the industry is expected to grow at a whopping 25 per cent a year from now through 2025.

 

This also makes the Việt Nam Textile and Garment Association believe that the export target of US$35 billion this year is well within reach.

 

Banks likely to plead for hike in credit growth cap, again

 

Many banks will have to seek the State Bank of Việt Nam’s permission to lend further since they have almost used up their full-year lending quotas within just five months.

 

A spokesperson for a major bank based in HCM City said his bank had been allowed 14 per cent credit growth but has already achieved nearly 10 per cent.

 

Some banks have even used up their entire quota already, like Viet A Bank, Nam Á Bank, AB Bank, and Eximbank.

 

The SBV said as of June 1 overall credit growth was 5.6 per cent.

 

This has been attributed to the fact that many banks were worried about the possibility of negative credit growth like last year and so stepped up their lending activities.

 

Besides, many banks have been licensed by the SBV to open more branches and transaction offices this year while their credit growth quotas were allocated before that.

 

Many banks have said they would find it difficult to do business if they are not allowed to lend further this year.

 

This situation is not new and has in fact happened often in the past.

 

According a report from the State Audit Office, last year many banks, including Vietinbank, BIDV, Vietcombank, Agribank, SeABank, and HDBank, ended up with credit growth rates that exceeded the levels set by the SBV.

 

They had to seek permission to continue lending after hitting the limit.    

 

But the SBV refused to permit certain lenders to exceed the limit.

 

Some people have questioned the need for the central bank to control credit activities through quotas for banks.

 

This began in 2012 when many banks reported credit growth of up to 50 per cent, causing a spurt subsequently in non-performing loans (NPLs).

 

The central bank began to allocate quotas based on banks’ health and performance.

 

It has divided banks into four groups for allocating credit growth quotas: Group 1 (healthy banks), Group 2 (average banks), Group 3 (below-average banks), and Group 4 (weak banks).

 

Those in Group 4 might not be allocated quotas at all.

 

It has become evident that this system is going a long way in ensuring the safety of the overall banking system.

 

But many experts feel it is now time for the central bank to scrap the credit quota policy since the monetary market has finally stabilised after many years of volatility.

 

Besides, liquidity in the banking industry is high and the Government has adopted tough measures to clean up NPLs and stop cross-ownership of banks, they say.

 

Many banks themselves are now cautious about lending since they are well aware of the consequences, including the NPLs they are likely to be burdened with in case of reckless credit growth.

 

The experts say that in this changed scenario the central bank should stop using administrative measures to intervene, and instead allow the market to determine.

 

They further said that authorities now have a handy tool to closely and effectively control banks’credit activities: capital adequacy ratio (CAR).

 

CAR is an international standard that measures a bank’s risk of insolvency from excessive losses. Currently, the minimum acceptable ratio is 8 per cent. Maintaining an acceptable CAR protects banks’ depositors and the financial system as a whole.

 

The experts said controlling banks’ credit growth through CAR is preferable and in line with current trends. — VNS