Banks may miss restrictive credit targets

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According to a State Bank of Vietnam (SBV) directive issued early March, banks have to keep credit growth to 20 per cent this year in order to contain inflation.

To this end, they are required to gradually reduce loans to non-manufacturing sectors from more than 26.8 per cent at present to 22 per cent by June end and 16 per cent by the year-end.

When the directive was issued, 18 of the 42 commercial banks had outstanding loans made to non-manufacturing sectors at over 25 per cent, and the remaining had them at over 26 per cent.

Following the central bank directive, many banks have changed their lending strategies although non-manufacturing loans are more lucrative. They have especially reduced lending for personal consumption and real estate projects as well as stock market transactions.

In a recent report, the Nguoi Lao Dong (The Labourer) newspaper cited the staff of a few banks as saying collecting payment on loans made for personal consumption or trading in securities was easy.

They said these were typically short-term loans made against collateral assets with high liquidity.

However, this would not apply to real estate loans because their loan structure was different, they said.

Most loans made to the real estate sector, which account for 80 per cent of lending to the non-manufacturing sector, had terms ranging between 3 and 5 years or even 10 years.

Significantly, many of these loans were made for high-end residential housing projects that were not easy to sell, particularly at a time when the market was stagnant, like now, the bank staff said.

The owners of many real estate projects have said they have not been able to sell their products to collect the cash and repay their bank loans.

The deputy general director of a commercial bank in Ho Chi Minh City said that his bank expected to reduce loans to the non-manufacturing sector to 25 per cent by the end of June, a reduction of 1 per cent compared with early March.

Representatives of many other banks have also admitted that they would be unable to meet the central bank's requirement on reducing credit to the non-manufacturing sector.

In fact, some banks have broken the central bank's cap of 14 per cent on deposit interest rates, increasing them to as high as 20 per cent to attract more savings. They have then treated this as money collected on outstanding non-manufacturing debts, the newspaper report said, but did not mention how this was done.

Meanwhile, senior managers of many banks have proposed that the central bank maintain the deadline for reducing credit to the non-manufacturing sector, but increase the ratio from the required 22 per cent to 24 per cent by late June and 16 per cent by the year-end.

The newspaper report also cited a central bank official as saying the State Bank of Vietnam was likely to meet soon with commercial banks to discuss credit-related issues. They might apply different deadlines for separate banks for reducing non-manufacturing credit, the official said.

According to SBV Governor Nguyen Van Giau, 14 banks now have credit growth rates exceeding the 20 per cent cap, including the Western Joint Stock Commercial Bank (24 per cent) and the Vietnam Thuong Tin Joint Stock Commercial Bank (26 per cent).

He also said that as of May 23, the capital mobilised by banking sector had surged by 1.48 per cent as compared with the last few months of 2010.