Bank rate review

By the end of August 2013 banking sector credit rose to 6.45 per cent with an annual target of 12 per cent. As of September 20, however, it had retreated to 6.05 per cent.

“Many firms opted to not take out additional credit after paying back previous loans. In one case a business who paid back a $47.6 million loan only took at half that amount for the next period. In my opinion, bank credit will only grow by 9 per cent this year,” said deputy general director of Vietnam International Joint Stock Bank (VIB) Le Quang Trung.

State Bank of Vietnam (SBV) and Ministry of Planning and Investment figures also indicated credit falling in September.

A transaction bureau director at a Hanoi commercial joint stock bank said, “In the latter part of previous years, many banks were focused on getting deposits. They are recently trying to recover loans and boost lending. Firms are not being influenced by low-cost lending because of poor sales and stagnant production.”

As banks struggle to boost lending many are getting depositors thanks to higher than regulated interest rates.

The cap the rate for one month to six month deposits is 7 per cent though some are offering 7.5 to 8.5 per cent on one to three month term deposits.

Economists are explaining the shift as three potential scenarios.  

The first is considered a very unlikely scenario where banks balance their lending and deposit ratios.

The second is that banks with high bad debt ratios are hiking their mobilising rate to ensure liquidity by year end.

Third is people are becoming more informed about banking and the lack of stability of some local institutions and opting for those that are strong. This is pushing smaller banks to raise their rates to gain market share.