Banks switch to gov’t bonds as lending slumps

Banks switch to gov’t bonds as lending slumps

With borrowers nowhere to be found despite the repeatedly slashed lending interest rates, many banks are putting their money into buying government bonds.

Banks now have many deposits, but are failing to move the money into the economy as borrowers are hesitant to take out new loans, according to insiders.

Local commercial banks purchased more than VND50 trillion (US$2.4 billion), or more than 80 percent, worth of the government bonds sold in the first quarter of this year, according to the Hanoi Stock Exchange.

Amid these hard credit times, when the inter-bank lending interest rates have dropped to only 3 to 4 percent a year, buying government bonds is a good alternative option, bankers said, while admitting that it is only a temporary solution.

“What matters is flowing money into the economy,” an insider explained.

Deposit soars, lending slumps

On April 17, Vietcombank released the second cut on deposit interest rates since March, sending interest rates for savings of a term above 12 months to 9 percent instead of 9.5 percent.

“We had to cut deposit rates due to the poor lending against surplus deposit,” explained Vietcombank CEO Nguyen Phuoc Thanh.

What matters is that, although lending rates have been reduced, there is no demand for bank loans, so banks have difficulty finding new borrowers, he said.

“The fact that businesses fail to access bank loans despite the lowered interest rates poses a big issue for the economy,” a chief official of Eximbank stated.

“Banks meanwhile are facing a tough problem -- finding ways to put money into the economy while having to continue mobilizing deposits,” he added.

Total outstanding loans in Q1/2013 in Ho Chi Minh City only grew 0.26 percent compared to the end of last year, while deposit rose 2.5 percent, according to the city’s branch of the State Bank of Vietnam.

Meanwhile, Do Minh Toan, CEO of ACB, said the capital surplus is merely an issue for some major banks.

“These banks only have capital available for short-term lending, while they lack money for loans of a mid- or long-term,” he elaborated.

“Businesses need long-term loans to restructure their debts as well as reduce payment pressures, but banks cannot meet their demands as they are not allowed to use more than 30 percent of their short-term capital for long-term lending.”

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