Cheap credit hardly spread

The central bank’s requirement on lowering interest rates for old loans to 15pct/year has been available for nearly one month, but the stock market has failed to see any sign of rally.

Such unfair guideline could hardly be put into practice and may bring about market distortion, said the chair of a member of G12. This bank’s present loans were charged with interest rates of as much as 16pct-17pct, which, accompanied by long term, provisions and operational expenses would definitely incur losses should this policy be executed, he said.

In essence, banks are also businesses, shareholders of which may see dividends even below deposit interest rates due to substantial investment capital. Therefore, it would make sense that interest rate cuts usually come with additional fees charged to borrowers.

Furthermore, the state-owned commercial banks and banks in which the government holds controlling stake proportion have long benefited from plentiful privileges yet failed to fulfil the role of leading the market as expected, he added.

In addition to low input capital expenses, these institutions have enjoyed enormous deposits of soft interest rates from state-run entities and the State Treasury whereas lending rates remain similar to those of the others.

Enterprises have seemingly faced up to more difficulties since July than in the previous months. Chair of Dabaco Corporation Nguyen Nhu So said working time in several units had now reduced to 11 days from 26 days as in the first half of the year. In all likelihood, given the current market movements, this firm year target would hardly be accomplished.

Cheap credit granting would be a challenge for businesses and lenders both, which may not mean much to enterprises in the context of economic turmoil. Despite tempting lending rates of 8pct-9pct, stagnant consumption would prompt businesses’ indifference to new loans.

Presently, both banks and enterprises would apparently count on the government’s positive reactions. Yet, self-adjustment should be given the top prioritised for the time being.

 

Category: Finance