The State Bank of Vietnam reported that outstanding loans of the dong remain slow in the first seven months, requiring commercial banks to add more measures to lower interest rates to promote dong credit growth.
According to the SBV-HCM City branch’s data, by late July 2010, HCM City banks’ mobilised capital in dong increased 16 percent, while dong loans posted a growth of 5.7 percent. Thus, deposits were more than loans by 10.3 percent, indicating the output of dong at banks in the city in was extremely narrow.
With dong lending interest rate averaged at 13.91 percent per year, many thought that this interest rate was still high, so businesses could not access capital to expand production. On the other hand, in late June and early July, banks restricted foreign currency loans, bringing export loan interest rates to 11 percent -12 percent per year, making businesses towards borrowing dong. But this time, the world commodities market hid a lot abnormalities, adversely affecting to the output of enterprises, so businesses were very cautious to ask banks for credit.
Typically, export companies, operating cashew and timber needed capital to import raw material reserves, then use the ingredients as mortgages for loans, but banks did not dare to lend out because of unpredicted fluctuations in the raw material prices. If businesses face any risk, this means banks will also be at risk. These are the factors explaining why the growth of dong loans has been too slow.
Leaders of many banks said that from now until the end of 2010, banks will hardly achieve credit growth of 20-25 percent. Asian Commercial Bank (ACB) plans to target outstanding loans growing 60 percent from a year ago, but now ACB reached just above 30 percent of its target.
General director of a bank in HCM City said that not only the credit staff of its bank but also himself had to directly go to search, and convince potential customers for credit relations.
Meanwhile, some small banks lacked the capital, while bank loans are not allowed to borrow loans of partner banks on the inter bank market because the SBV restriction on banks lending out exceeding 20 percent of the capital raised from the population, forced to draw money by raising real interest rates savings up to 11.5 percent per year, higher than the interest rate of 11.2 percent per year which banks agreed in June.
To retain customers, larger banks also had to offer deposit rates equal to the actual capital rate of small banks. Thus, deposit rates which are averaged at 10.56 percent per year does not reflect the true nature of the market. If small banks’ saving interest rates remain high, big banks that have enough capital cannot reduce interest rates, which makes the market interest rates platform find it more difficult to decrease further.