Credit squeeze is leaving firms on their knees

Some international financial institutions argued the State Bank’s recent moves to cut key rates, particularly trimming the ceiling deposit rates by 1 per cent twice within one month, is too hasty and  could heat up inflationary pressures. What is your stance?

The governor’s decision is right. I had actually proposed him make a 2 per cent cut, not 1 per cent, and I think the next cut will be 2 per cent. I visited many enterprises and small shops. Almost all of them now just need to break even or earn a small profit in view that domestic consumption has sharply plunged.

That means the State Bank’s moves would not exert impact on the price of commodities in the consumer price index (CPI) basket. Moreover, the price of food and foodstuff, the key element of the CPI basket, has strongly declined. I think the State Bank’s moves are not  monetary easing as ones said since the credit for 2012 is capped at 15-17 per cent and the credit growth in the first three months was actually minus. Another thing is 2011’s inflation at 18.13 per cent is very huge. So I am sure there will be a single-digit CPI growth for 2012 against 2011’s big figure.

The interest rate cuts are aimed to rescue banks by rescuing enterprises. You agree?

Vietnam’s economic stagnancy is serious now. Enterprises that need to die already died. What is still alive are enterprises which are very healthy, but are at death’s door. Do not let them die. No enterprises can survive with a borrowing rate of 20-25 per cent. When the deposit rates goes down, banks must lower lending rates in tandem. Moreover, since Governor Nguyen Van Binh stated there would be an average 1 per cent cut every quarter, banks have stopped speculating on interest rates. Thus, lowering lending rates will help banks to disburse surplus fund and rescue enterprises. Actually, banks immediately lowered lending rates after the State Bank’s moves. I think many banks will be even lending at 12-13 per cent.

LienVietPostBank is lending at as low as 13-14 per cent for agriculture, rural and export firms.
Currently, we do not dare to lend to those who are willing to pay very high interest rates because that kind of willingness indicates the borrower’s signs of death. Some banks are lending at extremely high rates because they could not find borrowers and they faced serious liquidity problems. I think the ceiling deposit rates will come down to 9-10 per cent toward the end of the year.

Corporate governance issues, including internal lending, harbour huge risks in the Vietnamese banking system. How is internal lending handled at LienVietPostBank given the fact that its second biggest shareholder is Him Lam Corporation, a big real estate company?

A special thing at our bank is big shareholders do not take loans from LienVietPostBank. We recently issued a resolution which strictly regulates that there must be no internal lending. If a major shareholder proposes our bank extend loans to one enterprise or a person which fails to meet our borrowing criteria, we can still lend to that one but the LienVietPostBank shares of that shareholder would be the collateral for that loan.

Is LienVietPostBank looking for a foreign strategic shareholder?

We do have a plan to find a foreign strategic investor. But, we will not invite any foreign strategic partner into our bank within the next few years. At the moment, we are too busy with developing a gigantic operational network based on the post offices at communes and districts across the country after the Post Saving Company was merged into LienVietPostBank. Our bank will have 10,000 transaction points in three years thanks to this merger.

Moreover, we do not need a financial impetus from a foreign strategic shareholder like other banks. Our major existing shareholders include telecom giant VNPT (15 per cent), Him Lam Corporation (about 10 per cent stake), Agribank (5 per cent) and some key individual shareholders are very cash-rich. Established just four years ago, LienVietPostBank’s chartered capital is now almost double the start-up VND3,300 billion ($159 million). If we raise chartered capital to more than VND10,000 billion ($481 million), that would be hot growth.

What we would need from a foreign strategic investor is corporate governance and technology systems. But, now we are too occupied with the issues of network development. And we also want to be more ready by being a better bank before inviting a foreign strategic shareholder in. Now, it’s not the time yet.

Many local banks are shying away from listing, despite planning many years ago for a stock market debut given the local bourse’s doldrums. Is it the same case for LienVietPostBank?

Listing is a target as that helps improve transparency and better shareholders’ rights. But the market conditions are yet to be favourable. Moreover, at the current period of time, none of our major shareholders has demand to sell their shares.

We also want to make our image better before listing so as the shares will have a higher real value. Under existing rules of the State Bank, a bank wanting to list must be operational for at least five years. LienVietPostBank was established only four years ago. That rule actually encounters the Securities Law which said enterprises need only three years operating of which two years sees a profit. But, the State Bank’s rule exists.