Though the State Bank of Vietnam (SBV) has lowered interest rates, banks have still found it hard to loan because so few enterprises qualify.
Lower interest rates with modest lending
Many banks have tried to further lower interest rates which has caused worry among banking experts.
From June 28, the cap on deposits with terms of between one and six months was cut to 7% per year, while the ceiling lending interest rates for some prioritised industries was also cut to 9% per year. However only a minority of enterprises qualify for these loans.
Nguyen Duc Vinh, General Director of VPBank, cited the bank’s survey, saying that only one or two out of ten enterprises that apply for bank loans meet all requirements.
“The banking sector is faced with pressure to boost lending, but around 70%-80% of businesses fail to meet their requirements. This situation has led banks to continually lower interest rates," Vinh said.
The effect has been a race by many banks to lower their interest rates in order to attract more customers. This trend has brought about warnings from a number of experts.
Phan Thi Chinh, Deputy General Director of the Bank for Investment and Development of Vietnam (BIDV), said "This trend poses certain risks to the whole banking system."
According to her, due to the better access to capital, several enterprises have increased their profits by certain investments, some even exceeding their targets. This profit, she said, returns into the banking system in the form of deposits that earn interest.
On the other hand, she also noted that several foreign banks have jumped into the lending race by lowering interest rates. She added that, "If this trend continues, it could pose a problem when there are those who would take advantage of the disparity between the VND and foreign currencies, threatening the exchange rate."
Leaders of a number of commercial banks have suggested that the SBV lower the cap on lending interest rates and remove the cap on interest for deposits with terms of over six months. They say this would attract more deposits to small banks.
Nguyen Duc Vinh said some banks that have reported low credit growth have applied irresponsible policies, such as buying their own debt and increasing lending based on demand. He emphasised that these practices could lead to real trouble in the coming years.
Pham Thi Chinh agreed, saying that banks in this country are taking on more risk.
Her suggestion was that the SBV should more closely monitor the flow of capital in the banking system so as to ensure that an acceptable proportion of the funds are used for industries which promote economic development instead of non-production industries. This, she said, could help curb inflation.
