Capital market becomes abnormal, but understandable

Capital market becomes abnormal, but understandable

Though the mobilized capital was 10 times higher than the lent capital in the first eight months of the year, a lot of commercial banks are still intensively seeking capital by offering high deposit interest rates. Where has the capital been going to?

The documents released by the Ministry of Planning and Investment at the press conference in early September showed the continuous disbursement of the banks in the first eight months of the year. By August 20, the total money supply (M2) has reportedly increased by 10.3 percent in comparison with December 31, 2011. While the outstanding loans had increased by 1.4 percent, the deposits at banks had increased more sharply by 11.23 percent.

However, despite the credit slowdown, commercial banks still have been making every effort to attract more deposits. Some banks have launched promotion programs, promising gifts to depositors, while others illegally break the laws, offering the deposit interest rates higher than the ceiling rate set up by the State Bank at nine percent per annum.

Observers believe that banks would not use the capital to invest in securities or real estate projects, because of the high risks of the investment channels. The banks are not likely to use the money to buy gold, since the State Bank of Vietnam has requested to stop mobilizing and lending in gold. Hoarding dollars proves to be not a wise choice, because the dong/dollar exchange rate has been stabilized for a long time.

There could be two reasons that explain why banks still keep mobilizing capital. First, banks use the money to be raised from the public to buy government bonds. Second, they try to seek more capital to improve their liquidity.

A report by Bao Viet Securities Company about the bond market in the first half of 2012 showed that the State Treasury successfully issued 54,824 billion dong worth of government bonds in the first six months of the year, and 7894 billion dong worth of treasury bills. As such, the State successfully sought 62,718 billion dong worth of capital, fulfilling 62.7 percent of the yearly plan, which represented the 49 percent increase if compared with the same period of the last year.

The secondary market has been warmed with the total trading value reaching 74,646 billion dong, or 2.43 times higher than the same period of the last year. Domestic banks remain the major members of the market with 18 banks, or 50 percent of the members, buying government bonds worth 37 trillion dong, or 67.8 percent of the issued bond value.

Meanwhile, according to the State Bank, the total outstanding loans of the national economy have reached 2617 trillion dong, while the loans provided in the first half of the year had reached 20 trillion dong. The figures show that the sum of money poured by commercial banks into government bonds in the first half was twice as much the sum of money additionally pumped into the national economy during the same time.

A banking expert in HCM City said banks now have profuse short term capital; they still keep cautious in the disbursement for the fear about bad debts. The bad debt increases have led to the banks’ hesitance to make transactions on the interbank market.

Regarding the banks’ efforts to improve liquidity, Dr Le Dat Chi from the HCM City Economics University has affirmed that while most of the banks have reported strong liquidity, some banks are still in bad conditions, which have to seek more capital to ensure the liquidity.

vietnamnet