15pct lending rate to be maintained for one year: Cbank

Jul 23rd at 13:04

23-07-2012 13:04:55+07:00

State Bank of Vietnam (SBV) governor Nguyen Van Binh has promised that the current lending rate of 15 percent will remain unchanged for one year in a recent meeting in Hanoi.

The information was shared by the SBV governor with the leaders of banks headquartered in the capital city and the representatives of 300 enterprises there in a business dialogue intended to promote business activity in the second half of 2012.
The statement was made in reply to a question by a business leader regarding how long the 15 percent lending rate will be kept.

Nguyen Thu Ha, Director General of Construction Machinery and Equipment Co, said the lending rate of 15 percent per has just materialized after a year of expectation from the local business community

“If inflation remains stable at 7 percent a year, the lending rate of about 15 percent per year can fully be realized,” Binh said, adding that the rate will surely be stable in the last two quarters of 2012.

According to Binh, lower interest rates are the general expectation of the economy in relation to long-term stability, but the rates must track the development of the macroeconomic situation.

"Because low interest rates will be translated into loosening monetary policies this means that credit growth will be very high. The implication of high credit growth is that more money will also be made available to underperforming companies, which will raise the risk of overdue debts and potential instability.”

“Thus, the anti-inflationary objective is in the forefront and the SBV has to stick to it by not taking any reckless steps.”

“As credit growth will be concentrated in Q3/2012, and planned growth for the whole banking system is only 8-10 percent in H2/2012, it will certainly not cause inflation for the next year," Binh said.

"Just listen to and follow the direction of the SBV governor. From the day I took office, I have always announced any SBV moves publicly before implementing them,” Binh told the meeting.

“I have said the foreign exchange rate between the US dollar and the Vietnam dong will not exceed 3percent from now to the year-end, and I have kept my word.”

“With the current operating mechanism, the SBV reaffirms that the instability in monetary policies we encountered in the past will never happen again," he added.

Still unaffordable

According to the central bank, most banks have reduced the old interest rate loans to 15 percent a year. However, some have maintained the high rate, as reported in recent discoveries by the press.

But many local businesses have bemoaned that such a lending rate is still unaffordable to them.

Le Vinh Son, Son Ha International Corp’s Chairman of the Board , said the desired interest rate should be reduced to 10 percent per year, although the current interest rate has been cut from 20 percent per year to about 14.2 percent.

Do Ha Nam, Intimex Co CEO cum chairman of Vietnam Pepper Association, said despite hard access to credit, local companies are very afraid of the banks.

There are many banks posing a risk to borrowing companies with unstable lending mechanisms which allow them to recall the loans whenever they want.

After the establishment of a series of joint stock banks, at first the lending mechanism was so open that everyone could borrow at ease.

But when risk appears, all of the banks started to tighten their wallets simultaneously, regardless of how well a company was performing. Well-run businesses found that they could not adapt to the new situation as fast as they needed to.

Ha said a bank told her firm, a strong performer that is never late in debt repayment, on Saturday that the money would be available on Monday. But when the day came, the bank asked for more paperwork which resulted in a business opportunity lost for her firm.

Noting the comments, Binh said that many banks have violated the regulations of SBV by allocating 42 percent of their short term capital for medium and long term lending, while the maximum rate allowed is 30 percent.

In fact, almost 100 percent of recently-raised capital by the banking system is short-term recently.

Regarding the legal stance of the governor’s guidance on cutting interest rates for old debt to 15 percent per year, Binh said this is only recommended for state-run and joint stock commercial banks so that they can help share the difficulties with local firms.

As a result, there will be no penalty for those who don’t obey it, Binh said