Banks face tough juggling act

Louis Taylor

VIR’s Nguyen Hanh talks with Louis Taylor, CEO of Standard Chartered Bank Vietnam to see whether the whole-year lending limit of 20 per cent will cause problems for foreign banks in Vietnam.

Twelve foreign banks have exceeded the whole-year lending cap, according to the central bank. The four-month credit growth of 14.7 per cent means there will not be much space for foreign banks to manoeuvre on credit expansion in the coming months. To what extent is the limit a problem for foreign banks?

I don’t think anybody should be surprised that the credit growth of the foreign banks was faster than that of domestic banks because the foreign banks are all smaller than certain bigger local banks. If you have a smaller balance sheet to start with, 20 per cent growth is a small number.

The 20 per cent cap is more problematic for the smallest of the foreign banks who have ambitions to grow their balance sheet. But there are many other business lines that can carry on growing effectively even if lending cannot. The lending limit is not helpful for the foreign banks, but it’s not fatal. I doubt you’ll see any foreign bank leaving Vietnam as a result of this measure because actually – from a pure macroeconomic point of view – some kind of limitation on credit growth is the right thing for the Vietnamese economy. And to a certain extent foreign banks have as much of role as domestic banks when it comes to helping the government stabilise the macroeconomy.

Some foreign banks proposed the central bank allow them to exceed the 20 per cent, but governor Nguyen Van Giau disagreed. Is your bank among those who want to cross the line?

Yes. Together with 11 other foreign banks we wrote to the State Bank. The governor said “no”, but he said “no” to everybody. The central bank is obviously trying to be fair to all banks. But actually there are different ways of looking at fairness and the foreign banks have a different view of that.

You said a one-size-fits-all policy was not the right option and that the central bank should take into account the circumstances of individual banks including their capital adequacy ratio (CAR) and rate of non-performing loans (NPL). But categorising banks into different groups for determining lending limits could prove complicated while the central bank’s human resources and capability are limited. Isn’t that correct?

I am not sure that any of that is true actually. We have a high regard for State Bank officials. They do seem to have enough staff and inspectors, they’re very engaged in the banking system and the statistics the governor had at hand in his two recent meetings with all the banks’ CEOs show that they do have quite a lot of data.

I think it’s a particularly difficult time now, when inflation is still rising and when the currency’s stability is still very recent. It’s a difficult time for the State Bank to be more refined in how it applies this policy. I think once you see inflation starting to come down, and once you see longer-term stability in the currency market and perhaps the trade deficit coming down, then I hope the State Bank might be more open to having this flexibility in its approach to different banks. 

Have you had to turn away many potential borrowers because of the credit cap?

I think all banks seeing their credit growth rationed will end up having difficult conversations with their customers. It’s difficult for banks, it’s difficult for customers, and it’s not helpful for the relationship between the two. But that is how the policy is intended to “bite”.

We have had conversations with customers where we were forced to say, “Look, in this environment, it’s not something we can talk about now but maybe in the future”. We have seen customers wanting to enter into commitments more aggressively with us because there is less capacity elsewhere in the banking sector. These are all natural symptoms of the policy, and no surprise.

Standard Chartered just announced a revision to its year-end forecast on the VND/USD exchange rate. Why the change?

We had previously forecast one more devaluation of the dong in the last months of the year to see the exchange rate at around VND21,800 per dollar. Our revised forecast states this will not be the case. We predict the exchange rate by the end of the year will be VND20,600 per dollar. The ground for that revision is we believe inflation will be more under control and the anti-dollar measures and the pro-dong measures will create enough stability to remove the need for another devaluation in the dong this year. In 2012, there may be another slight devaluation but we would expect the dong to devalue only gradually thereafter.