Expert says VN banks are playing with fire

Expert says VN banks are playing with fire

Vietnamese banks are in a bind as they are unable to find borrowers while they still have to pay regular interest to a number of depositors, Associate Professor and Doctor Tran Hoang Ngan, deputy principal of the Ho Chi Minh City University of Economics, has said.

“Some credit institutions have been burned, which is evidenced by the current race to cut deposit interest rates,” Ngan said.

At least five banks have announced reductions in deposit interest rates for different short-term savings this week, with Agribank the most notable lender as it is offering a record-low rate of only 5 percent a year.

The latest player join to the race is Sacombank, which cut the interest rate for deposits of a term between seven and 11 months by 0.2 percentage points from the ceiling rate to 7.3 percent a year.

“Banks have surplus liquidity but their loan outlets are obstructed,” Ngan commented.

Sacombank CEO Phan Huy Khang admitted that his institution is having trouble finding borrowers, and thus had to cut the deposit interest rate to pull down the lending rate.

The banking system booked a modest 1.4 percent loan growth in the first four months of the year, while deposits jumped 5.34 percent, according to data from the SBV.

But Ngan said lowered lending rates are not enough to solve the problem.

“There should be other solutions, such as boosting consumption, as it is unnecessary for businesses to borrow new loans while they are still unable to empty stocks,” he explained.

It’s not loans that matter

“The main problem for businesses is how to clear their unsold inventory stock, not borrowing new loans,” said Van Duc Muoi, chairman of the Food and Foodstuff Association.

“As businesses have yet to empty their stocks and settle their old bank loans, they cannot continue or expand production, and thus cannot borrow new loans,” he elaborated.

Sharing this view, Han Vinh Quang, chairman of the An Binh Paper JSC, said even though a bank is offering loans at only 7 percent a year, his company is not interested.

“What’s the point of increasing production when you are still struggling to find buyers?” he said.

“Consumption remains poor, payments are late, and it’s better not to start any new investment.”

Meanwhile, a member of the board of directors of a joint-stock company said his institution still has to pay interest for old debt at interest rates of 11.5 to 13 percent a year.

“These rates remain unchanged even though the deposit rates are constantly reduced,” he said.

The company is in need of a VND100 billion loan, but a bank still offered a high interest rate of 11 percent a year, he said.

Commenting on this, Nguyen Phuoc Thanh, CEO of Vietcombank, said it takes time for banks to pull lending rates down as most of their deposits are mobilized at high rates.

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