Bankers ask pointed questions

The chief concerns are about the central bank’s policies potentially over-regulating the economy, which could lead to future shocks. After quickly cutting deposit interest rates by 2 per cent points to 12 per cent, the State Bank early this month capped lending interest rates for most sectors at 15 per cent.

“The act of capping lending rates is a policy that no regulator likes to do. The lending interest rate is actually the price of credit risks, banks have to accept risks when they lend and the price must cover those risks.

Once the rate is capped, it does not reflect the risks which makes it difficult for commercial banks to lend,” said Do Ngoc Quynh, deputy director of BIDV's Treasury Department on the Hanoi-based conference Risk Vietnam hosted by Asia Risk last week.

While credit activities make up and major part of 60-80 per cent for revenue of local commercial banks, bankers at the conference raised big concerns about how commercial banks would safety operate, while profit margins for banks have dramatically narrowed.

Meanwhile, risks in the local economy are high and have impacted on the banking structure, fixed-income investments, interbank lending and in other investment tools, with a rise in bad debts.

“We are in a sensitive situation. On one hand, we need to meet the credit risk management requirements and on the other hand we need to meet business requirements,” said Hung Dao Gia, deputy head of credit management at Vietnam International Bank.

Simon Morris, CEO of Techcombank, said: “There is a bit more concern in Vietnam than six months ago – there are more questions about the performance of the economy.”

“Risks have especially risen to minor commercial banks,” said director of a small bank with chartered capital of less than VND4 trillion ($193.2 million).

“While major banks have good customers and can choose low-risk loans, minor banks do not have the luxury,” said the director. “Most customers that minor banks approach to lend are small- and medium-sized enterprises. The profit margins are too thin to cover our costs.”

“I think the policy [of capping lending interest rates] is unfair to minor banks. But I understand that the policy will force minor banks to merge into major banks, which is part of the central bank’s roadmap to restructure the banking industry,” the director added.

Quynh warned that while risks had dropped, there were still danger signs.

“The interest rate cap will force commercial banks to move towards higher-standards of credit,” said Quynh.

Quynh assessed the central bank’s policies as not “over-regulated”.

“To compare with regional markets, the level of regulations is still limited. In terms of administration and risk management, the State Bank’s regulations are still inferior to that of other countries.”

“After the financial crisis in 2007, 2008 and 2009, the common trend in the world is over-regulated [policies] and Vietnam is not an exception. There will certainly be consequences, but whether we can avoid these consequences or not will depend on the system’s regulators,” he said.