Lower deposit rates unlikely to boost loans, say experts

Some experts doubt the move to lower interest rates on deposits will do much to help businesses get loans.

The State Bank of Viet Nam on Monday lowered the cap on interest rates that commercial banks can pay on short-term deposits from 9 per cent to 8 per cent per year, hoping to give banks the impetus to cut lending interest rates and give enterprises easier access to capital.

Some commentators, however, doubted the move would make much difference.

“Cutting deposit rates doesn’t mean that lending rates will be lowered, and if it does, we will have to wait for quite a long time,” said Hoang Cong Gia Khanh, head of the Ho Chi Minh City University of Economics and Law’s banking and finance department. “Currently, banks’ lending rates are likely to include the high costs of risks since enterprises are still facing tough conditions.”

The director of the Ho Chi Minh City Banking University’s business administration department, Le Tham Duong, said that the deposit rate cut wasn’t expected to have any clear impact on companies or the economy. Many firms were weighed down with high inventories due to poor market conditions so few were seeking to borrow further, he said.

He also noted that a number of banks have violated the current deposit interest cap of 9 per cent, offering rates as high as 11.5 per cent, so a tighter cap was no more likely to be obeyed. Economist Bui Kien Thanh agreed, urging the State Bank to crack down on violating banks to force them to conform with regulations.

Military Bank general director Le Cong told the newspaper Tuoitre (Youth) that banks were likely in any event to offer lending rates at around 10 per cent in the near future instead of the current 11-12 per cent to “good clients with efficient projects”.

Nguyen Van Thuan, a financial expert from Ho Chi Minh Open University, said that the current deposit rate cap only benefited banks and that it was necessary to set a ceiling lending rate by law to solve this problem.

Viet Nam International Bank deputy general director Le Quang Trung said that the 8-per-cent deposit rate remained attractive and suggested it was unlikely to encourage more lending or borrowing.

“Such a deposit rate is still higher than the inflation rate, so a reduction in the value of people’s savings at banks won’t occur,” Trung said.

Economist Le Dang Doanh, said banks had healthy reserves since deposits had grown by about 16 per cent this year while lending expanded by only about 6 per cent.

Nevertheless, industry insiders were concerned that people might shift their savings to foreign currencies if a low deposit rate were maintained for too long a period.

“The difference between the deposit rates for Vietnamese dong and US dollar is currently only 6 percentage points and this is an unsafe gap,” an anonymous expert told the newspaper Thanh Nien [Young People]. “Pressure on the US dollar will increase and the State Bank can’t ignore this.” 

 

SBV moves to resolve bad debt

Vietnamese lenders have resolved more than VN$39,000 billion (US$1.8 billion) of bad debt so far this year as the country seeks ways to revive the country's economy.

Total non-performing loans in Viet Nam's banking system are reported to be about VN$250 trillion ($12 billion.)

The governor of the State Bank of Viet Nam (SBV), Nguyen Van Binh, told a press conference on Thursday that non-performing loans at Vietnamese lenders stood at 8.82 per cent of total lending as of September 30.

“We've taken drastic measures to handle bad debt in the banking system,” said Binh.

He said strong action in cutting wages and bonuses by many Vietnamese banks during the year and for the coming Tet was one of the sacrifices people were being asked to resolve non-performing loans.

Next year, the governor hopes to resolve debt of VN$40-50 billion ($1.92 to $2.4 billion).

According to Binh, lenders have set aside more than VN$78 billion ($3.6 billion) for loss provision.

A State Bank plan to set up a national asset management company is expected to be approved by the Government to handle many bad loans.