Banking to fall into shape by year’s end

illustration photo

Lending rates between banks on the interbank market have slid during the past two weeks  lower than the ceiling deposit rate of 14 per cent, per year.

On June 16, 2011 State Bank governor Nguyen Van Giau forwarded Dispatch 4605/NHNN-CSTT to commercial banks asking them to strictly abide by regulations relevant to dong deposit and lending rates. Credit institutions must not apply deposit rates of beyond 14 per cent, per year and take on measures to save costs to keep the lending rates at reasonable levels, particularly in regard to lending to agriculture, export, support industries sectors and small- and medium-sized enterprises.

Giau asked the Vietnam Banks Association to require its members to follow central bank interest rate regulations. Besides, the banking sector’s inspection and supervisory bodies stepped up efforts to control credit organisations and apply penalties towards violators.

According to central bank’s preliminary report about banking operations in the first half of 2011 the outstanding loan growth was merely 7.05 per cent in the first six months against late 2010. These is much room for increasing lending in the second half of the year following the proposed outstanding loan growth of under 20 per cent in 2011.

Poor performances in banks’ lending were partly attributed to high lending rates and banks’ efforts to restrict lending to non-productive sectors.

To boost lending in the next months, banks must present suitable lending rates.

“Inflation is forecast to gradually cool down from July. Besides, stable dong-dollar exchange rate in the past months is good for banks to foster dong liquidity, thus enabling them to gradually pull down the interest rates,” said Dr. Nguyen Van Thuan, head of Ho Chi Minh City Open University’s Accountancy-Financing Faculty.

Banks did not want to tag deposit rates at high levels on the back of modest lending, said DongA Bank deputy general director Nguyen Thi Ngoc Van.

“Our bank must restrict lending to new customers and strive to better serve existing customers to control credit growth as required by the central bank. Therefore, outstanding loan growth at DongA bank was 8 per cent only in 2011’s first five months,” Van said.