Commercial banks are indifferent to SBV refinancing

13-Jun-2014 Intellasia | DNSG | 6:00 AM Print This Post

Surprisingly, no commercial bank has asked for refinancing from the State Bank (SBV), although SBV is ready to disburse funds.

In principle, the commercial banks which sell bad debts to the Vietnam Asset Management Company (VAMC), instead of cash, would receive special bonds, which can be mortgaged to get refinancing loans from the State Bank.

Analysts estimated that VAMC has bought VND43 trillion worth of bad debts so far, while everything has been going very smoothly.

Nevertheless, analysts find it questionable why debt sellers have not got refinancing from the State Bank.

In theory, banks sell debts to free themselves from the debts and get money to increase their usable capital and improve their liquidity.

It is a good choice for banks to get loans from the central bank. The refinancing interest rate applied to the bad debt sellers, as stipulated by the prime minister’s Decision, is 2 percent per annum lower than the normal refinancing interest rate.

The current normal refinancing interest rate is 6.5 percent, which means that the banks selling bad debts to VAMC, can borrow at 4.5 percent per annum.

Meanwhile, if banks mobilise capital from the public, they would have to pay 6 percent per annum.

Commercial banks may have realised great benefits that they can receive when borrowing capital from the central bank. The three to six-month loan interest rate in the interbank market was higher at 5 percent on April 4.

Meanwhile, the State Bank has denied the charge that it does not want to provide refinancing loans to commercial banks, affirming that it is ready to disburse money at any time.

Why do commercial banks are indifferent to the refinancing, despite all the great benefits?

In the thoughts of bankers, the State Bank would give refinancing to the banks which seriously lack capital and could fall into a dangerous liquidity situation.

Therefore, banks would have to ask for help if they fall into deadlock and cannot find any other alternative solution.

Meanwhile, weak liquidity is not the problem of the banking system at this moment. A few commercial banks reportedly lack capital, but they would rather borrow money in the interbank market than contact the State Bank.

It is not the conditions set by the State Bank, but it is the strict monitoring mechanism which makes banks hesitant to access the State Bank’s refinancing.

In all cases, the State Bank has the right to keep tight control over the use of the loans granted to banks, supervise the disbursement and the debt collection.

When applying for refinancing, commercial banks have to explain to the State Bank the how the capital would be used and then commit to follow the plans. Meanwhile, it is clear that no bank wants to be supervised by anyone, unless it has no other choice.

Economists have commented that it is not a problem if banks refuse to borrow from the central bank. In the current context of the banks’ strong liquidity and low credit growth rate, it would be better not to pump more cash into the market through refinancing.


Category: Finance

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