Vietnam - Despite low interest rates, dong credit grows slowly

by lexie Fri Sep 30, 2011 12:44 pm

September 30, 2011

Despite low interest rates, dong credit grows slowly

A lot of commercial banks have slashed the lending interest rates to 17-19 percent per annum applied to production, export and agricultural enterprises. However, the disbursement remains very slow.

The State Bank of Vietnam has released a report showing that by the end of August 30, 2011, the credit growth rate of the whole banking system had reached 8.85 percent; lower than the 16.9 percent growth rate of the same period of 2010.

Commercial banks all say that though the lending interest rates have been eased to 17-19 percent, or 16 percent, applied to some special subjects, it is not easy to attract borrowers.

It is because, according to analysts, the prestigious businesses which have feasible investment projects, still believe that the 17-19 percent per annum interest rates remains unbearable for them. Meanwhile, many trade companies wish to borrow money at the above said interest rates, but they are not considered as “good clients”.

Nguyen Tuan Anh, Deputy General Director of Ut Xi Seafood Processing Company, said that the 17-19 percent interest rates are still relatively high, and that only the 14-15 percent interest rates would be affordable for production and export businesses. The enterprises still dare not to borrow money now, because they hope the interest rates would go down further.

“If businesses have to bear such high interest rates, they will not be able to maintain operation,” Anh said.

Meanwhile, the foreign currency loan interest rates have been raised to 6.5-7.5 percent from the previous levels of 4.5-6 percent per annum. “Therefore, enterprises just keep production at a moderate level,” Anh said.

Commercial banks only have three more months to push up lending to increase the credit growth rate to 20 percent, the ceiling level set up for 2011. A lot of banks reportedly have profuse capital, especially the big banks which have great advantages in mobilizing capital. However, the banks prove to be hesitant to disburse money in the current big economic difficulties.

Experts say that banks fear the bad debt ratios may increase when pushing up lending, since many businesses have “health problems” when their products remain unsalable in the context of high inflation, which forces people to cut down expenses.

A lot of banks have announced the launching of the programs on reserving trillions of dong to lend at the preferential interest rates of 17-19 percent. However, banks themselves have admitted that they need to keep cautious when providing loans, and that they focus on disbursing money for production, agricultural and export companies.

Eximbank, which has announced the 3 trillion dong credit program with the preferential interest rate of 18 percent, for example, has disbursed 500-600 billion dong since mid September.

At Nam A Bank, the “budget” allocated for export, agricultural enterprises is 500-1000 billion dong with the interest rate of 17-18 percent per annum (Nam A’s average lending interest rate is 20-21 percent per annum). However, the bank has admitted that it has not disbursed much money under the program so far.

To date, the credit growth rate of Sacombank has reached five percent only, much lower than the allowed level of 20 percent. However, Sacombank’s General Director, Tran Xuan Huy, said that this is not the reason that forces the bank to lend at any costs. Especially, Sacombank keeps choosy in lending in order to minimize bad debts.

Vu Tu, General Director of Tien Phong Bank, has noted that the credit has not grown rapidly as expected, because businesses still hesitate to borrow money and delay investment projects to “listen to the news”.

http://www.vietfinancenews.com/2011/09/despite-low-interest-rates-dong-credit.html#more