Governor Nguyen Van Binh of the State Bank of Vietnam (SBV) last Saturday asked lenders to urgently review old credit contracts and lower the interest rates for these contracts to below 15% per year starting from July 15.
Speaking at a review conference on the banking performance in the year’s first half, the governor requested banks to have specific solutions to support their corporate clients in producing, doing business and reducing inventory.
“Banks must have a responsibility towards society. Public opinion complains that banks are making ‘bulky’ profits given a wide gap between deposit rates and lending rates, but they do not share the burden with enterprises,” Binh said.
He demonstrated that some businesses had showed him fresh loan contracts with interest rates of 18-19% and 21-22%. They asked him: “You pledge to cut lending rates, but they have not reduced.”
He stressed enterprises had already faced many problems, so high interest rates will make it more difficult for them. Once business is in trouble, so are banks.
Therefore, Governor Binh asked banks to review their borrowers and slash interest rates for old loans to under 15%.
SBV will soon issue guidelines for commercial banks to cut rates. After July 15, SBV branches will join hands with local banks to carry out credit contract revisions at each enterprise and adopt viable solutions.
In response to the request of the governor, leaders of several big banks like Vietcombank, Vietinbank and Agribank committed to rapidly lower interest rates. “We must save ourselves first, or else we would also die,” said Nguyen Phuoc Thanh, general director of Vietcombank.
Thanh said only 25% of the credit volume at Vietcombank was now levied the rate of over 15% per annum, so the bank could easily satisfy the requirement of the central bank.
Meanwhile, Mai Suong, director of SBV branch in Hanoi, pledged to quickly bring down interest rates for old loans to “below 20%”. Governor Binh immediately criticized: “What a poor target. This is a political task. I propose the interest rates for old loans cut to less than 15% from July 15.”
Le Hung Dung, chairman of Eximbank, said his bank had reduced VND100 billion worth of interest for corporate borrowers. He suggested the ten leading banks do the same, so VND1 trillion will be slashed every year.
A report that SBV Deputy Governor Nguyen Dong Tien delivered at the conference shows that as of end-June, money supply rose 5.57% against late last year, consistent with the money supply growth target of 14-16% for 2012.
However, the total bad debts of the system by end-May accounted for 4.47% of total outstanding loans, versus 3.07% at the end of 2011.
“Bad debts pick up against the year’s beginning due to old loans. Given the unfavorable market conditions and high inventory, borrowers saw their financial situations worsening, making them unable to repay bank debts,” Tien explained.
Mai Suong bemoaned that “there has never been such a high bad debt ratio as this year.” She informed in the first six months, bad debts of the Hanoi-based banks accounted for 5.12% of total outstanding loans, higher than the national average.
Deputy Governor Tien cited the data of SBV’s bank inspection and supervision agency saying that 84% of the system’s bad debts were secured by collateral, whose values equal 135% of the bad debt.
However, some bankers, such as Han Ngoc Vu, chairman of VIB Bank, said treating overdue debts is very complicated. For example, it would take up to three years to handle properties as collateral, making it difficult for banks.
Similarly, Nguyen Thi Nga, chairwoman of SeABank, admitted her bank does not want to handle collateral as it is “troublesome”.
According to SBV’s report, as of end-June, credits only inched up 0.76% against the end of 2011, or 1.4% with investment capital balance in corporate bonds and trusts included. Credits for small and medium enterprises dropped 13.69% as of end-March.
SBV ascribed the credit decline to low credit demand, troubled businesses, and huge inventories restricting capital absorption capacity of banks, among other reasons.
In the first six months, the chance of credit expansion was mere, said Deputy Governor Tien.
“The debt repayment ability of businesses and households decreases given the problem of outlets, poor liquidity of the real estate market makes it difficult for the operations of credit institutions as collateral for loans is mostly properties, so banks tend to set stricter requirements for lending to minimize risks and ensure credit safety,” Tien explained.
Thanh of Vietcombank said his bank’s credits only grew 3-4% in the year’s first half, with almost no growth in the first three months. The situation has improved in recent months.
Thanh set the growth target of 10-12% for his bank this year. Mai Suong said she would strive for growth of 9-12% in Hanoi.
Meanwhile, as requested by the Government, national credit growth must be 15-17% to achieve the GDP growth target of 6-6.5% for this year.
The Government’s expectation is reasonable, but the possibility to realize such a goal is slim, said the general director of Vietcombank. He said only demand stimulus measures could resolve the root cause of low credit growth.
In addition, Thanh deemed it necessary to combine the monetary and fiscal policies. “Rapid credit growth is in demand, but State investment implementation only reached 30%, so how can we stimulate demand?” he wondered.
The Saigon Times Daily