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Credit growth fears to limit loans   2009-10-31 - VIR

The rollover of 2009 loan subsidy programme funds could be limited due to safety restrictions.

Government bonds are being pointed to as a safe way for banks to lock up their excess funds

Nguyen Thi Kim Thanh, head of the State Bank’s Banking Development Institute, said around VND10 trillion ($560 million) in short-term loans of less than 12-month terms would be returned in November and December, 2009.

These loans were extended under the government’s 4 per cent interest rate subsidy programme launched in February, 2009. The central bank recently announced to expand the subsidy programme to cover medium and long-term loans which will mature by the end of 2011.

Nguyen Thanh Toai, Asia Commercial Bank’s (ACB) general deputy director, said few of the returned funds would be rolled-over into medium-term loans. “Most of these funds were short-term mobilisation ones, while the State Bank has tightened the conditions of using short-term funds to finance medium- and long-term lending,” said Toai.

In August, with Circular 15/2009/TT-NHNN, the State Bank allowed lenders using a maximum 30 per cent of short-term deposits to fund medium- and long-term assets instead of 40 per cent previously.

A Vietinbank source said that depositors still favoured short-term deposits, mainly three and six-month terms.

“Thus, once we get back the money extended during February-April, it will not be easy to allot these funds. Government bonds could be a good source,” said the Vietinbank official. At the moment, the government’s interest rate subsidy programme is only applied to medium and long-term loans.

“The rate subsidy makes loans more affordable and without a rate subsidy, the interest rate could be quite high for enterprises. But, we are capped by the 30 per cent level,” added the Vietinbank official.

Vo Thi Sanh, BIDV’s Treasury Department vice head, said that in November and December, some of the loans would be returned.

“By then, it would create some space for us to extent new loans under the watchful eyes of the authority over credit growth,” said Sanh. Sanh admitted that the bank had actually denied some borrowing requests, due to the bank’s high credit growth over the past few weeks.

In 2009, under inflation concerns, the State Bank aimed to keep the credit growth under 30 per cent. However, over the first nine months of the year, credit grew by 28 per cent. Thanh shared the view that investing in government bonds could be an alternative for banks to funnel their available money. “Investing in bonds was not considered as lending and current government bond yields are quite okay,” said Thanh.

At the moment, two and five-year bonds are traded at 10.0-10.06 per cent, per year while normal loans interest rates are capped at 10.5 per cent, per year. Lenders are allowed to mobilise and lend at rates within 1.5 times of the base rate currently set at 7 per cent.

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