Vietnam - Lending sags despite high bank liquidity, lower rates

Many banks have recently met with serious obstacles in promoting lending despite abundant liquidity and continuously cutting interest rates on loans.

According to the State Bank of Vietnam (SBV)'s official data, the banking sector's credit growth from January through March stood at almost minus 2 per cent, even though the liquidity of major banks had improved significantly.

From the end of last year to March 20 this year, the total outstanding loans of the entire banking system dropped 2.13 per cent, according to estimates.

This year, the country has targeted to limit credit growth at 15 and 17 per cent.

Many independent market analysts said that high lending interest rates, banks' concerns about bad debt, banks'strict lending requirements and decreased purchasing power were the main causes.

They said the central bank recently slashed the deposit rate cap further to 12 per cent per annum, expecting lending rates to follow the trend.

This latest rate cut was a much-needed move to trim down banks' funding costs and lending interest rates to boost credit growth.

As a result, lending interest rates have been cut to between 14.5 per cent and 16 per cent per year.

Many commercial banks are offering the lowest rate of 13.5 per cent to enterprises involved in agriculture, rural and export areas.

The interest rates of loans for investments in production and trading activities are between 15 and 20 per cent.

Bank loans injected into non-production sectors stand at 20 and 25 percent.

However, these lending interest rates are still considered too high by enterprises, which has discouraged borrowers.

In addition, many borrowers, mostly enterprises, are not qualified for bank loans.

Experts said that banks had had to select customers for lending carefully because they were afraid of an increasing number of bad debts.

Banks have been more cautious recently, following the central bank's issuance of Circular No 10/2013/TT-NHNN that aims to limit credit growth for credit institutions that have a bad-debt ratio on total loans at 10 per cent or higher for three consecutive months.

Meanwhile, Ly Xuan Hai, general director of Asia Commercial Bank, said lending interest rates were much lower than they were before.

However, many enterprises did not want to borrow because the market's purchasing power had fallen.

Lending interest rates were not the decisive factor in influencing enterprises' borrowing habits. Thus, banks still could not attract borrowers even after lending interest rates fell significantly, Hai said.

Most enterprises wanted to borrow in order to maintain their operations but not expand their production and trading activities, he added.

Trinh Van Tuan, CEO of Orient Commercial Bank, also admitted that the bank had abundant available capital, but could not promote lending activities.

Ocean Bank's credit growth stood at a minus 2 per cent for the first quarter of the year.

Although enterprises still want to borrow capital from banks, they still are reluctant because of decreased purchasing power and interest rates that are still high, according to Nguyen Thi Ngoc Van, general director of DongA Joint Stock Commercial Bank.

To ensure this year's credit growth target, the bank would also focus on providing personal loans, in addition to lending enterprises, Van said. Because of these difficulties in lending, many banks have shifted their attention to exploiting payment services in hopes of improving their profits.

Since early March, many have promoted payment service activities, such as collection of water, electricity and telephone charges and even import ant export duties.

Eximbank, for example, has a promotion under which it gave bonuses worth 300,000 dong (US$14.30) and free services for six months to those who pay their electricity bills at the bank.

Other banks, Techcombank, VIB, HDBank and Maritime Bank, have also offered several kinds of payment services at home and abroad.

VietBiz24

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