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Banks entreating businesses to borrow money   2008-10-03 - VNE

State-owned banks, and then joint-stock banks, one after the other, have announced lending interest rate cuts in order to lure more clients. This is quite different from a few months ago, when banks emphatically said ‘no’ to most businesses.


Businesses need capital
On September 26, Vietcombank announced it would reserve VND3tril to loan to small- and medium-size enterprises (SMEs).


State-owned Vietinbank has been leading in loaning to SMEs with outstanding loans for the segment at VND50tril. The bank has decided to give VND10tril worth of more loans to this group of clients.


Joint-stock banks have also been trying to attract more clients. VP Bank, which had outstanding SME loans of VND14tril at the end of September, has decided to provide VND2tril more.


Techcombank has launched a programme on pushing up loaning to very small enterprises and business households. The programme, which is scheduled to begin in October, allows every household to borrow up to VND300mil with disbursement within 24 hours of loan approval.


Commercial banks have rushed to cut lending interest rates as their mobilised capital has increased sharply and credit grown slowly as a result of tightened monetary policies. Banks once demanded 21% per annum on loans and other fees but are now offering to lend at 17.5% only.


“We are insisting that clients borrow money,” said Le Dac Son, General Director of VP Bank.


VP Bank, according to Son, has seen its mobilised capital rise by 30% over the beginning of the year, while its credit has increased by 5% only.


Son said that capital still keeps inflowing into the bank, though the interest rates have been decreasing sharply from the highest peak of over 18% per annum previously. If the bank does not push up loaning, it may fail to fulfill its yearly business plan.


He went on to say that in order to stimulate the demand for loans, it is very likely that VP Bank will slash lending interest rates considerably (the currently applied average rate is 20.5% per annum).


Banks have gotten more capital since the liquidity crisis in the first and second quarters of the year. For the last two weeks, since the financial crisis broke out in the US, Vietnam’s banking system has had VND15-30,000tril worth of capital in excess everyday. The figure was VND40tril yesterday, October 1.


However, Son admitted that it is not so easy to attract clients. VP Bank dares not expect the number of clients to increase sharply with the decisions on expanding credit and slashing interest rates. Son thinks that only businesses which have uncompleted projects and are really thirsty for capital will contact banks for loans.


Regarding the interest rate in the time to come, a banking expert said that deposit interest rates could be lowered to 15-16%, which would pave the way for banks to slash lending interest rates to 18%. He said that the lower deposit interest rates would still be able to attract deposits, since other investment channels like securities, gold and real estate prove to be less safe.


Governor of the State Bank of Vietnam Nguyen Van Giau, in a talk with the press on the sideline of the government’s news conference on September 30, said that banks can push up loaning at this moment, but if their credit growth is overly high, they will be punished. Giau affirmed that fighting inflation remains the top priority task for now.

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