Banks crimp new loans

Wednesday, May 7, 2008
After various meetings, the ceiling deposit interest rate agreed among members of the Vietnam Bank Association (VNBA) has been raised from 11% a year to 12% a year. However many people said that there will be not much improvement for deposits and loans in the upcoming time. Banks will still tighten credit and businesses will continue meeting difficulties in accessing banks' capital.

According to some small-scaled commercial joint stock banks, simultaneously agreeing on raising the ceiling interest rate to 12% a year means that both large and small banks have the right to apply this interest rate. Small-scaled banks continued being entitled to disadvantages because with the same interest rate, consumers prefer large-scaled, prestigious banks to deposit their idle money instead of small banks. On the other hand, idle capital into banks is increasingly less when inflation has not yet been eased.

Pham Duy Hung, general director of Viet A Bank, said that deposits of banks significantly reduced in April. It was reported that deposits of HCM City-based banks in the first two weeks of April slashed by up to nine trillion dong against late March. Thus, Hung added that with high increase in inflation of 11.6% in the first four months, the deposit interest rate of 12% did not yet encouraged people to deposit money.

Sharing the same point of view, Le Dac Son, general director of Vietnam Bank for Private Enterprises (VPBank), said the government should not maintain the ceiling deposit interest rate but let it follow the market mechanism. In case the ceiling deposit interest rate is applied, the rate should be higher, 13-13.5% instead of 12% in order to attract deposits into banks. After sometime when banks balance supply and demand of capital, they will consider cutting deposit interest rates to reduce costs.

Up to now, the central bank only has restricted securities loans at less than 20% of banks' chartered capital however loans to other sectors are still decided by banks. Nevertheless, in fact banks seem to tighten credit strongly.

If banks restrict lending it is because they have failed to raise sufficient deposits although lending interest rates have climbed up to all-time high levels, 20-21% a year for medium and long-term capital, 24% a year for short-term consumer loans.

Son said that banks do not dare to offer much loans to new clients while lending applications of old customers must be carefully considered. Therefore, if the ceiling deposit interest rate is still maintained, this will cause difficulties for borrowers.

Meanwhile, Hung said if supply of dong continues being limited, banks still have to rein deposit interest rates based on the allowed ceiling deposit interest rate, borrowers will meet more difficulties because too big difference between demand and supply of capital.

Currently, almost all banks are worrying over ensuring liquidity, disposable income, hence, they do not dare to offer loans and also hastily collect old loans.

According to Luu Duc Khanh, general director of An Binh Commercial Joint Stock Bank (ABBank), if supply and demand of capital is not yet improved in the upcoming months, this will cause difficulties for banks because if deposits and loans reduce, revenue and profits of banks will also be narrowed accordingly. (DTCK)