Banks shun SBV's directive to curb lending growth

Tuesday, May 13, 2008
Since the start of this year, the State Bank of Viet Nam has taken a series of monetary tightening measures and warned commercial banks of limiting credit growth under instructions of the prime minister. However in a bid to gaining high profit, many commercial banks still continued promoting credit activities strongly, resulting higher and higher risks. Therefore, the central bank started taking specific actions to tighten credit activities.

According to initial statistics, in the first four months, the banking system's credit growth reached over 14% against the end of last year, far higher than the increase of 9% in the same period last year, or equal to 50% of the credit growth target of 30% that the prime minister assigned to the central bank at the start of this year. Meanwhile, an official from the central bank said that the growth of deposits slashed significantly against last year whereby many commercial banks were short of capital.

According to a leader from a state owned bank said that the reason for the shortage of capital at small banks was that they were unable to borrow capital from the interbank market. In 2007, because commercial banks all were abundant of capital, interest rates in the interbank market was mainly under 10% and some banks borrowed capital from the interbank market and then relent capital in the market.

"In 2008, impacts of the monetary tightening policy have made large-scaled banks not abundant of capital any more, interest rates in the interbank market highly increased up to 40% some time," said the leader. Over the last time, interest rates in the interbank market still stayed at high level, some 25%.

The leader added that some commercial banks are now using short-term loans to offer medium and long-term loans, breaking the central bank's regulations. This is the biggest risk, which can make commercial banks loose liquidity.

Recently, the central bank issued Instruction 03/2008/CT-NHNN asking Banking Inspectors to closely supervise activities of credit organisations, build quarterly, monthly supervising reports, and continue inspecting and supervising securities, real estate and consumer lending activities.

As for credit organisations, the central banks required them to promote their management, internal management capacity, follow regulations on safety ratio, categorise loans and set aside risk provisioning funds under current rules.

According to the official from the central bank, in the upcoming time, the central bank will have detailed statutes on criteria of risk management for credit organisations, which will be used as a basis for inspection.

He added that the central bank will take measures to control credit growth of commercial banks in order to ensure the growth of 30% or less in the whole system.

In 2007, the credit growth of 53% was considered to be the reason for all-time high growth of consumer price index (CPI) of 12.63%. By the end of April, CPI jumped by up to 11.6%. (DTCK)