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| Solutions to deal with banks' liquidity shortage |
| 12/Mar/2010 Intellasia | Thoi Bao Kinh Te Sai Gon |
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| 12 Mar, 2010 - 11:36:42 AM |
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Both enterprises and banks need not only a fully negotiation based lending rate mechanism (meaning that negotiated interest rates should be applied on all short, medium and long term) but also a fairly low interest rate band of 12-13 percent pa to develop production and ensure the economic growth of 6.5 percent this year. Both demands are controlled by State Bank of Vietnam (SBV).
Central Bank reported that before Lunar New Year and banks were in surplus of 13 trillion dong of spare capital that now has increased to 30 trillion dong.
However, vice head of National Assembly's Economic Committee, Vu Viet Ngoan told Lao Dong newspaper on March 5 that the sum of money of 30 trillion dong is usually used to meet liquidity of commercial banks.
In fact, credit institutions could not be in excess of spare capital because the capital mobilisation in the first two months of 2010 fell by 0.17 percent year-on-year. If the ceiling deposit rate and lending rate are still maintained at 10.50 percent (based on SBV's basic rate of 8 percent pa), bank capital still cannot come to enterprises and consumers because of high lending rates despite the negotiated rate is imposed on short term loans.
The lack of smooth capital flow is affecting to credit growth and Q1 GDP of 2010. Lately SBV reported that the credit growth of last December rose by 0.72 percent month on month, +0.26 percent in January and +1.14 percent in February. Meanwhile, general payment means in Jan-February increased by 1.39 percent.
But previously, on www.sbv.gov.vn, Central Bank announced the December credit growth (2009) at 0.87 percent and January 2010 at 1 percent. In January alone, general payment means was estimated to surge 1.5 percent and total deposits increased by 0.3 percent, meaning that general payment mean of February is a negative number along with the sharp reduction of capital mobilisation in Feb, hence the capital mobilisation in the first two months of 2010 fell by 0.17 percent.
The difference between two report periods was high. Whether is the February credit growth of +1.14 percent exact when both capital mobilisation and general payment means were posted at negative figures?
State Budget also is facing difficulties because of interest rate problem. Despite an increase in the tax collection, there was not enough money to offset the budgetary deficit. To compensate the budgetary overspending, the state relies on issuing government bonds. Last year the bond issue was gloomy and seemed to be worse in 2010. In the first G-bond issue tranche on January 15, the Ministry of Finance (MoF) sold 75 billion dong of two-year bonds at coupon rate of 11 percent/year among 1.5 trillion dong of bond offering under the guarantee of CitiBank Hanoi.
During the second tranche on January 26, only two billion dong of 1.5 trillion dong of G-bonds were sold to Vietcombank Securities Co. Announcement on the third bond issue tranche was released on March 2, 2010 but to date no one has registered to buy because MoF's coupon rate of 11 percent pa was lower than the bidding rate of 13-14 percent pa. However, the finance ministry cannot raise the coupon rate higher then the SBV's ceiling lending rate because the coupon rate of G-bonds is one of standard interest rates of the market.
Late 2009, the state budget had to advance tens of billion of dong of deposits (of State Treasury, of insurance firms mainly Bao Viet Group and some other state groups) for spending. For this move, state groups withdrew deposits from banks, leading to the liquidity shortage of banks. Finally, banks were forced to enhance capital mobilisation from residents through pushing the deposit rates.
This year the demand for issuing G-bonds is expected to be higher, hundreds of trillion of dong, to offset the budgetary overspending and pay the money advance of 2009, Le Duc Thuy-chair of National Finance Supervision Committee told Saigon Economic Times (Thoi Bao Kinh Te Sai Gon). One of the most feasible measures is that SBV should offer short term advances to the state budget in order to surmount the temporary liquidity shortage. State Budget will pay the advances within that fiscal year, which was allowed by Law on State Budget.
National Finance Supervision Committee proposed MoF to issue short term bonds (3-6 months) with the coupon rate of 8 percent pa to the SBV. Central Bank will buy those bonds by deposits and compulsory reserve capital of credit institutions. By this way, State Budget will have money to pay advances to the State Treasury and state groups. After that State Treasury and groups will re-send the sum of money to banks. As reported, the capital mobilisation of the whole banking system during the first two months of this year decreased mainly because deposits of economic institutions slumped 5.94 percent. Once State Budget refunded the advanced money items, the gap of 5.94 percent will be fulfilled.
Earlier, enterprises enjoyed the lending rate subsidisation of 4 percent pa while borrowing bank loans at 6.5 percent in 2009, but now they have to manage capital hard with the lending rate of 18 percent pa. So now the liquidity of commercial banks should be raised soon and become urgent problem.
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