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Banks struggling to increase credit in last months of the year   2010-09-08 - Dau tu, Nguoi lao dong

The demand for capital from businesses usually increases at the end of the year. However, commercial banks say they do not think credit can grow rapidly in the last months of the year because of many barriers.





Pham Trung Cang, Deputy Chair of Asia Commercial Bank (ACB), said the bank’s outstanding loans in the last few months have increased considerably. “We really want to lend money, but there are no good clients with good credit profiles who are capable of paying debts, and we cannot disburse money to bad clients,” Cang said.


In the first eight months of the year, ACB’s credit grew by 30 percent. The bank needs to increase lending in order to raise the credit growth rate to 54 percent in 2010 as initially planned. Cang said businesses now do not want to borrow money, not because of high interest rates, but because they are not sure if they can sell products. “If businesses cannot sell products, they will refuse the loans, even if the lending interest rate is as low as 10 percent,” he said.


For big banks like ACB, credit growth depends on the selection of clients, while for small and medium-sized banks, it depends on the volume of capital banks have for lending.


Mobilizing enough capital for lending is now a headache for many small banks. OCB has launched a new banking product, offering a surprisingly high interest rate of 5.8 percent per annum for demand deposits. The bank is also applying a promotion program, offering gifts worth 7.5 billion dong for depositors.


Trinh Van Tuan, General Director of OCB, said in general, small and medium-sized banks are inferior to bigger banks in terms of mobilizing capital, because they are less prestigious, and their networks are not large enough. To date, the ratio of loans to the bank’s mobilized capital has reached 90 percent.  If the bank is not able to increase credit, it cannot mobilize more capital.

According to the State Bank of Vietnam, by August 2010, total mobilized capital has increased by 16.3 percent, while outstanding loans have increased by only 5.8 percent. As such, if compared with the first seven months of the year, mobilized capital increased by 0.3 percent, while outstanding loans increased by only 0.1 percent. The gap between mobilized capital and lending capital for the first eight months of the year was relatively high, at 11.3 percent.


According to Nguoi lao dong newspaper, credit officers of banks are now sitting idle as the demand for loans remains very low.


The officer said very few clients can borrow money at “soft” interest rates of less than 12 percent. Meanwhile, the normal interest rates of 14-14.5 percent are unaffordable for many companies, and only those businesses who urgently need capital contact banks. Individual clients also do not intend to borrow money at this moment, while they are still awaiting average consumer interest rates, now at 17 percent, to go down further.


Analysts have pointed out that the Circular 13 on capital adequacy ratios (CAR) is also a barrier that obstructs banks’ efforts to increase credit. The legal document, to be effective as of October 1, 2010, stipulates that banks must not lend more than 80 percent of mobilized capital. The mobilized capital does not include demand deposits.


Commercial banks have complained that with such strict requirements, they do not have enough money to lend, thus making it impossible to increase credit in the last months of the year. Banks hope that the central bank will consider amending the circular; however, the State Bank of Vietnam has so far not responded.


Tuan from OCB said the bank really wants to increase credit, but it has to obey the central bank’s regulations first, and then try to increase bank profits.

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