As the Vietnam economy still faces many difficulties, people and enterprises are not optimistic to start new businesses or widen business scale. Other investment channels like gold or securities contain many risks. Therefore the flows into commercial banks have sharply increased. The question is whether banks should cut interest rates or offer more favourable conditions to promote outflow?
Excessive money
Many commercial banks shared that after the Lunar New Year, saving money flowed into banks increasingly while outflow could not rise equally, so banks pushed up buying government bonds despite low interest rates. Right after Tet, Ministry of Finance offered bid for VND10 trillion of government bonds with interest rates of only 6.58 – 7.95 percent per year depending on maturity, and the Ministry mobilised successfully more than VND9 trillion. Although these bond interest rates are low, it is clearly seen that commercial banks do not have to suffer too many losses compared to current interest rate. The losses come mainly from reserve requirement. However, VND9 trillion of purchased government bonds reveals that banks possess abundant amount of capital currently.
Another figure shows the money excess in commercial banks lies in the OMO. The State Bank of Vietnam (SBV) pumped a large amount of capital by open market operations. On 12th February, net inflow into the SBV reached VND9,715 billion while day earlier, the figure was 4,899 billion. Accordingly, only on two days, SBV received nearly VND15 trillion through OMO.
After Tet, banks promote operations, lending, searching for new customers to plump out the capital. However, credit growth rate was -0.5 percent in January 2014, and is forecast to increase weakly in February, credit activities have not shown any positive sign in first months of 2014. The obstacle not only comes from complicated banks lending procedures, but also lies in enterprises and business households. Therefore, a commercial bank manager said that: His bank and many other banks of various sizes are in the trend of lending individual business households and consumer lending. Consumer lending will be strongly developed and an issue of competition among banks in 2014.
High real interest rates
Difficult access to capital and high interest rates are permanent problems to enterprises and people with real demand for money. A “standard” lending document highly evaluated by commercial banks must have a collateral, especially a house with land use right certificate, as well as a certificate of money resource to ensure capital repayment to banks. Completing a document like that is very time-consuming. From completing the document, waiting for it to be assessed, completing secured procedures and disbursement procedures. It normally takes about 3 – 4 weeks for these procedures or at least a half of month. It still does not include other fees arising when credit officers conduct these procedures.
At current time, interest rates for commercial lending and consumer lending in large commercial banks still at 13-14 percent a year, it has not reduced as strongly as banks confirmed. The initial lending interest rates can be very low, about 5-9 percent a year when lending contract is signed, but how long do the enterprise or consumer enjoy the rate? Normally, interest rates in contracts are made floating along market interest rates, they are fixed at favourable level from first 3 – 9 months. For example in Techcombank, with a 84 month lending package, the favourable interest rate of 9.9 percent a year is applied only for the first 9 months, after that it floats along market interest rate, equally to 13.9 percent a year at the time – this is not a low rate as many people are misunderstanding.
On 19th February, Ms Nguyen Thi Hong, Director of the Monetary Policy Department, SBV said that with preferable condition, lending interest rates can be reduced by 1-2 percent a year. This is a second time since the beginning of 2014, the SBV has confirmed to cut down lending interest rate. Also according to Ms Hong, lending interest rates for agriculture, rural areas, export, SME, supporting industries, high tech enterprises will be at 7-9 percent per year; rates for other business fields will be 9 – 11.5 percent per year, of which credit-trustworthy enterprises will enjoy rates of only 6.5-7 percent per year. Interest rate level has returned to that of the period of 2005 – 2006 and is only half of that in the last months of 2011.
However, despite reduction on interest rates, the liquidity is still low and the level is still not attractive. If lending interest rates keep reduced, deposit interest rates will be the first thing to be influenced. Right at the beginning of the year, many commercial banks reported losses. They are familiar with operating with large gap between lending interest rates and deposit ones, and by now no bank has confirmed to scale down the gap to reduce interest rates. According to them, generally it is hard to cut down interest rates. To ensure system security and liquidity of banks, there are many opinions that the lending interest rates only decrease if deposit interest rates are cut down to below 7 percent.
The sign of cutting down interest rate has been raised from the SBV. However, unsolved bad debts are still an obstacle to credit flow. Enterprises and the whole economy are hoping for an easier access to capital with more preferable interest rates. But at the same time, banks are struggling with bad debts and restructure. Instead of real strong and decisive actions, banks are making up too many “technical actions” so that lending interest rates seem to decrease.
Le Minh
Đăng ký: VietNam News
