Banks to face uncertain growth in lending

Banks to face uncertain growth in lending

Competition among banks to lend is likely tougher as the State Bank of Viet Nam expects a 12-14 per cent growth in credit this year.

Credit by banks expanded 11 per cent last year, below the 12 per cent target set for the year, despite concerted efforts by commercial banks and the central bank to boost lending.

Last month, the central bank announced that it would resolve policy-related and procedural issues to facilitate credit expansion and ensure the sector's financial health.

However, banks believe hitting the target is not that easy.

Sacombank's General Director Phan Huy Khang told the Investment newspaper that attracting borrowers is becoming more difficult because enterprises have no plans of expansion in the currently dull market environment.

In principle, banks are allowed to use no more than 30 per cent of their short-term deposits for funding medium-term loans. However, as almost all the deposits are short-term in nature, the rule prevents banks from increasing their lending, Khang argued.

Banks, such as the NamA Bank, Mekong Bank and SCB, will give priority to low-risk borrowers, including individuals, retail traders, households, small and medium enterprises, and borrowers from rural and agricultural businesses.

With the addition of new clients becoming challenging, several banks are attempting to retain existing clients by offering lower interest rates and restructuring short-term loans into medium – or long-term loans.

Governor Nguyen Van Binh said HCM City would be able to achieve the credit growth target of 14 per cent as there are several programmes that strengthen the cooperation between banks and enterprises. In addition, social housing loans and business investments are also showing positive signs.

According to the HCM City People's Committee, to achieve the 14 per cent credit growth target, the city will work with the central bank to implement monetary, credit and interest rate policies in such a manner that these policies ensure the stability of the financial markets and local banks.

City leaders have also proposed that the central bank reduce the interest rate of loans given to the priority sectors. This would encourage eligible enterprises to continue investing and improving their competitive capabilities.

In regard to social housing loans, the People's Committee suggested that the central bank should co-ordinate with the various ministries and branches to improve the legal framework for administrative procedures and mortgage transactions. That would also give banks collateral for loans.

According to the central bank's report on operations in 2013, the total loans of banks in HCM City were estimated at VND952.55 trillion (US$45.14 billion), representing an increase of 9 per cent compared with late 2012, People's Committee vice chairwoman Nguyen Thi Hong said.

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