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Credit market awaits drastic measure from central bank   2010-08-03 - Nguoi lao dong

No considerable progress has been made in terms of interest rate reduction and credit growth, although the State Bank of Vietnam (SBV) continues to urge banks to ease interest rates.

The HCM City SBV Branch reports that, by the end of July 2010, mobilized capital in dong increased by 16 percent, while outstanding loans had risen by 5.7 percent. As such, mobilized capital was 10.3 percent higher than outstanding loans, showing banks have few loan clients.


Analysts note that the current average lending interest rate of 13.91 percent per annum is still relatively too high for businesses to access. Since late June and early July 2010, in an effort to persuade businesses to borrow money in dong, banks have tried to restrict lending in foreign currencies. They also lowered the dong lending interest rates to 11-12 percent for export companies. Still, banks are cautious in providing loans, because they are unsure about price fluctuations in the world market.


Cashew nut and wood furniture firms now need big volumes of capital to import materials. Banks dare not disburse money to these businesses, because world prices have been fluctuating. If the prices plummet, enterprises will incur losses and cannot pay bank debts.

All these factors can explain why outstanding loans in dong have climbed slowly.

Many commercial banks managers fear they cannot fulfill the plan on credit expansion. Asia Commercial Bank (ACB), for example, wants to obtain the 60 percent year-on-year credit growth rate in 2010, but to date, outstanding loans have risen only 30 percent. A HCM City bank’s General Director remarked that not only credit officers of the bank, but also executives have searched for clients who want to borrow.


Meanwhile, deposit interest rates are relatively high. Small banks lack capital to lend, so they push interest rates high to 11.5 percent, which surpasses the 11.2 percent rate that banks agreed to after Vietnam Banking Association’s call to lower interest rates.


As a result, other banks must also push interest rates high to retain clients. If they do not offer high rates, clients will leave for small banks. The average deposit interest rate stands at 10.56 percent.


Financial analysts have also pointed out that interest rates will not fall unless drastic measures are applied. They suggest removing the limits on the amount of capital that banks can borrow from other banks on the interbank market (currently, the volume of capital a bank can borrow from another must not be higher than 20 percent of the capital they can mobilize).

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