Commercial banks start to loosen purse strings

This was announced by Do Thi Nhung, Deputy Director of the State Bank of Vietnam’s monetary policy department, at a meeting in Hanoi on November 5.

She said lending was largely concentrating in a number of prioritized sectors, with loans to exporters representing 10.76 percent of new loans, followed by lending for enterprises in rural areas and support industries.

Financing for small-and-medium sized enterprises remained limited due to these firms’ low adaptability to bad economic conditions, including weak demand and a frozen real estate market.

However, Nhung said, the State Bank has asked the Ministry of Finance to develop guarantee policies to enable SMEs to borrow capital, and has asked the Ministry of Planning and Investment to establish a SME development fund.

The Ministry of Industry and Trade has also been asked to help business reduce unsold inventory levels, including consumer loan programmes and other policies to stimulate demand.

Despite mounting bad debt levels, Nhung said commercial banks remained secure, with liquidity “basically assured and improved” and the foreign exchange market “relatively stable”.

Inflation has been brought under control, allowing interest rates to be slashed by 5 percent sooner than had been expected, she said, noting that the percentage of outstanding loans carrying interest rates of less than 15 percent, a cap stipulated by the central bank in mid-July, has climbed to 90 percent.

Nhung added that the State Bank would continue to support credit institutions with liquidity issues and supervise their performance. It would also work with lenders to resolve bad debt issues.

National Advisory Council for Monetary Policies member Le Xuan Nghia said that current caps on deposit interest rates needed to be lifted in order for banks to avoid legal risks. Although the interest rate on Dong deposits was capped by the State Bank at 9 percent, many banks had illegally raised rate to 11-13 percent to attract needed capital.

“If we remove the ceiling rate, there will be greater risks of higher interest rates, but they won’t be able to increase immoderately since they will be determined by supply and demand on the market”, Nghia said.

Nghia suggested that the State Bank should take no responsibility for protecting banks facing bankruptcy.

“Customers must decide for themselves whether to deposit money at good banks with moderate interest rates, or at weak ones which are forced to offer interest rates at sky-high levels,” he said.