Interest Rate Cap

http://en.stockbiz.vn/News/2011/5/28/213841/state-bank-denies-rumour-of-new-interest-rate-cap.aspx

If you follow Vietnam economic condition, you probably know about the interest rate tree-passing and racing by banks. For many various reasons (will be discussed in another post), free market interest rate are high in Vietnam. The best shot that the Central Bank took to resolve the chaos is to put in the cap, which has no effect on the real market interest rate and makes the situation even worse. Anybody who took an econ introductory class know about this. The market wants interest rate to be around 17-18%; then you try to artificially (as oppose to naturally) force it down to 14%. Noway it's going to stay at 14%. Somehow it will find ways to come back to the natural stage: 17-18%.

So why the State Bank still do it?

For a couple of days I have been trying to find out the reason. And this article, so far, is the best piece I found. This is quote directly from the article:

He (Director of State Bank of Vietnam) revealed that the SBV had considered adjusting interest rates when global prices fluctuated last month, but now that prices and inflation were declining as well as the national economic condition improving, "why should we lift the caps on deposit rates?"

So the two reasons the governor pointed out are:
- inflation is going down
- national economic is going up

Yes, inflation going down with reduce the free market interest rate from current level of 17-18% closer to the cap level of 14%... hoping the two are closed. But so why don't we just take the cap off so we know for sure the two are exactly equal (in other words, we know for sure the real on-market interest rate is at its natural level).

And then, I don't see the direct connection between national economic condition and justification for putting interest rate cap. Maybe there is, but I just don't see it.

What do you guys think?

Corp Bond are still new to Vietnam?

http://en.stockbiz.vn/News/2011/5/29/213879/businesses-don-t-think-of-issuing-corporate-bonds.aspx

I found this article interesting. It talks about how VN businesses often try to get capital from banks while it is very difficult and expensive at this time. Here are some reasons:
- Need big name to get trust from public
- Lack of strong and transparency accounting

My take:
- Boom! Found out another reason that lead to the high interest rate in VN: businesses are slow in outreaching to different sources of capital. (The interest rate will be discussed in another post)
- The financial market in Vietnam is still very young and raw. Tons of rooms to develop and to make money.
- As big of the room for finance, Vietnam also need quality accountants now. Not specifically in field of auditing, but in the industries themselves. I believe that I am a quality accountant. Glad to see that I have a lot of room to practice.

Tax on vacant home?

http://en.stockbiz.vn/News/2011/5/27/213662/new-penalties-on-unused-homes-under-considerations.aspx

Summary:
The government propose a tax on homes or land that are left empty for a particular period (three months). The purpose of the tax is to avoid land wasting, which will drive the real estate market even crazier.

My Take:

It sounds like a good idea to me as long as it is executed properly. Here are some effects of the tax on the real estate market:
- Vacant home and land owner will have incentives to finish their home. More finished homes in the market means more supply as they will be rented out. And the increased supply of homes will stabilize the market.
- Those owners that can't afford to finish the home may have the option of selling it to those who is more willing to build and finish the home. In general, this shift the ownerships of homes to those who can build and finish it. And it will increase supple... bla bla bla.

A purely good tax should not create any inefficiencies (dead weight loss) and it should fix the market when the "invisible hand" doesn't guide people. In other words, individually beneficial actions sometimes don't result in public good. Tax is there to fix it. This tax seem to do that.

However, I am not buying that the gov will be able to execute it well. We live in a corrupting culture. Students know how to cheat since they got 8; adults know how to give kickbacks to polices on streets... Somehow, people will be able to go around this tax. In addition, finding out where vacant homes are and tracking their owners will be complicated and expensive tasks.

Words of Introduction

Welcome to our Viets on Viet's Business! If yous are interested in Vietnam business, this is the blog for you. This is the place where we will express our burning opinions, concern, or question on current issues of the growing economy. Remember that this is not the channel, it is the conversation.

Let me introduce myself and the reason I create this blog. My name is Kim Tran, a Vietnamese student at the Marriott School of Management - Brigham Young University. I have a relatively broad and diverse education background. I major in accounting, knowing that it's the best way to learn the language of business. I am also REALLY interested in economics, almost major in it. And lastly, I am trying hard to get more and more involved in the finance and banking world as they are the key area that drive the business world. I am not the smartest person interested in Vietnam's business by any mean. But I am very curious about everything around us, including the business environment.

Side Note: a big dream in my life is to open and run a highly successful business.

This summer, as I prepare myself for a case interview, I went through a lot of business articles. I found myself trying to summary and making a few quick notes of my takes on some interesting articles. I then ask: why not posting these on a blog, where everybody can comment and share their thoughts on these same issues? So here we are! This is the blog!

Guidelines of the Blogs:

Everybody can publish posts, write comments on this Blog as long as they are contributing. If you have any problem posting those, feel free to email me.
Blog posts may follow this format:
- link to an article (optional)
- quick summary on the interest parts that you want to talk about (optional)
- your take on that
A post can be any of the following: facts, analysis, comments, concern, or question ...
Spams will be deleted.

That's it for this introduction. Again, welcome to the Viets on Viet's Business Blog. No matter age, gender, religion, nationality, or education background and level, as long as you are interested in Vietnam Business, this is the place for you! And remember this is not a channel, it is the conversation!