Lenders eye end-of-year credit targets
Lenders eye end-of-year credit targets
The State Bank of Viet Nam has deflated banks' hopes of achieving the credit growth target by lending at low rates to prime customers, warning it will penalise those lending at below deposit interest rates.
The central bank fears that the low interest rates some banks are offering could spark off unhealthy business practices.
But some analysts refuse to buy into what they deem as specious logic, pointing out credit institutions' liquidity has improved significantly and many are facing the pressure to hit their credit growth targets set for the year.
The target is 12 per cent but banks have achieved only 8.83 per cent growth, forcing lenders to be offer credit at drastically lower interest rates.
In the last year or so lenders' deposit growth has been several times higher than lending growth, causing them to sit on a pile of cash even as companies are wary of borrowing at high rates.
As a result, banks have been forced to vie with each other to launch preferential credit packages to attract customers.
HDBank recently earmarked VND1.5 trillion for loans on which the interest rate is zero for the first month and 12 per cent for the next 11.
Asia Commercial Bank is offering loans worth VND500 billion (US$23.8 million) to small traders in markets and trading centres at 0.79 per cent per month.
TPBank is offering loans to buy, build, or repair houses at a mere 5.8 per cent for the first few months.
OceanBank is willing to lend at 7 per cent for the first three months of the loan.
The head of a commercial bank in HCM City's Tan Binh District said banks are not losing on these loans since a majority of their plentiful deposits are non-term.
Banks pay 1 per cent interest on average on current accounts.
Usually non-term deposits are used to lend on the inter-bank market, but at present interest rates and demand there are too low to attract banks' interest.
Investing in government bonds is also not a profitable business for them since their liquidity is not high.
The non-term-deposit situation is rather stable, enabling banks to use some of them to lend at low rates for a short term to lure customers.
An executive at another bank in the city's District 5 explained why lending at low rates made sound sense.
His bank too offers loans at 6-7 per cent to companies which have feasible projects and good credit records.
"With this we can help enterprises overcome their difficulties and also retain good customers.
"These borrowers also bring other benefits to the bank by paying service charges and crediting their employees' salaries to their accounts.
"Banks always do business in such a way that they make profits."
He admitted however that the banks need to carefully monitor how their loans are used.
Some companies borrow at low rates and deposit the money at other banks that offer high interest rates, a common practice in international markets known as carry trade.
But the bottom line is that most banks lending at the low interest rates continue to make profits.
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