Vietnam - Banks deposit large capital at other credit institutions

Commercial banks that are supposed to be lending to the economy have, in fact, deposited a large amount of capital at other peers, which has partly hindered credit from production.

The primary market (residents and businesses) is closely monitored whereas the secondary market (interbank market) is totally beyond supervision. Despite regulations on debt classification as in the primary market, barely has any bank put them into practice. The interbank market has seen substantial bad debts mounting rapidly. The 202 trillion dong bad debts released by the central bank indicates bad debts of businesses rather than credit institutions.

In principle, money injection would drive down interest rates, thus boosting up production. In fact, interest rates have yet much softened making bank credit inaccessible. As a result, inventories keep surging and manufacturing remains sluggish.

The total amount of deposits and loans among credit institutions reportedly gained 105.746 trillion dong at Vietcombank; 56.568 trillion dong at ACB; 36.627 trillion dong at MB and 21.308 trillion dong at VietinBank.

Such amounts would be to be made inter-payment and long-term deposits as well. Credit institutions would rather deposit at high interest rates at other peers so as to seek profits than bring credit to the economy. Consequently, the first six months experienced negative credit growth in spite of enormous capital injection.

Also, since capital flows among commercial banks rather than reach businesses, lenders’ plentiful profits despite modest credit growth would make sense then.

Normally, commercial banks burdened with liquidity problems will be directly funded by the central bank with specific obligations included. However, the operation will be conducted via intermediate credit institutions in Vietnam, hindering those of weak liquidity from such funding and pushing them into the interbank market to resort to credit at high interest rates.

As a result, liquidity keeps worsening and many have then defaulted on their loans. Ironically, collateral is required for lending in the interbank market whereas mere trust should be adequate. As such, interest rates have good grounds for the surging, which have then distorted the interbank market.

It is the lack of transparency in the central bank’s refinancing that discourages commercial banks from channelling credit to the economy as well as stir up the interbank market. Capital is unlikely to reach businesses and interest rates could hardly ease as expected unless any solutions would be executed.

VietBiz24

Business & Investment Opportunities 
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Healthcare and Life Science with expertise in ASEAN. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programmes. Many thanks for visiting www.yourvietnamexpert.com and/or contacting us at contact@yourvietnamexpert.com