Central bank wants state banks to re-pay 52tr dong
Source: 29-MAR-2008 Intellasia | 27/Mar/2008 Thoi Bao Kinh Te Vietnam
Mar 29, 2008 - 7:09:00 AM The State Bank of Vietnam on March 25 continued pushing state-owned commercial banks to build routes to transfer over 52 trillion dong that is deposits of the state budget back to the central bank. A question is that the state budget should be taken to do business and who is unsatisfied with the money transfer.

Amidst the current context, in order to rein inflation, the State Bank of Vietnam seemed not to miss any opportunity (if any) in order to withdraw money from circulation.

Huge amount of deposits worth some 52 trillion dong, which is in fact the state budget, is being traded at state commercial banks, is now the target of the central bank.

An official from the central bank said that "Ten-years ago, the finance ministry said that now was the peace time, risks for the state budget was less while inflation was low. Keeping the state budget at the central bank was very wasteful. Thus, such amount of money should be deposited at commercial banks."

Accordingly, the government approved the finance ministry's proposal on allowing state owned banks to trade the amount of money. Those banks in turn had to pay interest for the state budget based on demand deposit terms. Every month, banks re-appraised the interest rate and often fixed it at 3% a year.

It is supposed that by now, with 52 trillion dong, it is estimated that the state budget obtains 1.56 trillion dong. Compared to last year's interest rate of 9% a year or 15% -16% by now, the difference of 7% -13% a year on the above amount of 52 trillion dong that state owned banks benefit is far higher than that the state budget obtains.

Therefore, if state owned banks had previously so much benefit from the state budget, there is now no longer such benefit. That does not mention that if the central bank urges state owned banks to pay back the state budget within short time, banks will be inactive in capital. However want it or not, banks will still have to abide the central bank's request. The best way in the current context is delaying the return of the state budget.

Within the last one-month, the monetary management body has at least twice urged state owned banks build specific routes to pay back the state budget to the central bank as soon as possible.

A representative from a securities expressed his disappointment when saying that "the stock market has been gloomy. Now, such news will make the stock market worse. Banks will not only stop securities loans but also urge securities companies pay back matured securities loans or even collect securities loans prematurely."

Le Xuan Nghia, director of the central bank's Banking Development Strategy Department, said "the matter is not who wins or who loses but the state budget should not be entitled to any risk."

Nghia added that even depositing the above amount of money into state-run banks is also risky. In fact, when state banks use the amount of money to do business, they have to lend companies, securities investors and others and always face up risks of payment, credit and so on.

Meanwhile, developed countries always maintain their view that the state budget must be entitled to no risk. Therefore, those countries never advance budget from the state budget and then deposit it in commercial banks but this amount of money is kept in central banks or branches of central banks.

Nghia analysed while inflation is escalating, the above amount of money must be withdrawn as soon as possible because another important reason is money in commercial banks will generate more money.

A director of a foreign bank has ever warned that in the near future, the US's economy will hardly avoid an ever-biggest recession within 80 years and the world's financial market will be hurt. If the world's economic crisis happens, Vietnam will be impacted significantly.

Everyone knows that at the moment when banks are now short of capital, paying back the above amount of money will impact liquidity of some banks. However amidst the context that consumer price index in the first three months has exceeded the economic growth already, state owned banks should share difficulties with the community.