It’s horses for courses for banks

Commercial banks are obliged to lower old loan interest rates to a maximum 15 per cent per year under a central bank guidance.

But, while bigger banks willingly reduce old loan lending rates, small and medium sized banks are cautious as the move could dent their profits.

TienPhong Bank chairman Do Minh Phu assumed abating lending rates was not simple as banks again had to raise deposits at high rates. Phu said three months ago, the bank mobilised at a ceiling rate of 14 per cent, per year but mobilised amount had yet to be fully lent out.

In respect to the concessionary credit package worth VND3,000 billion ($142.8 million) launched in early June 2012, the bank lent out VND1,140 billion ($54.2 million) through contracts signed with 40 customers.

Beneficiaries are mainly firms operating in petroleum, pharmaceutical, building material and industrial zone investment areas with the lowest lending rate at 13 per cent, per year.

The general director of a small Ho Chi Minh City bank said the State Bank having removed property-oriented personal loans from non-manufacturing credit basket was a good thing for banks to boost personal lending.

HDBank deputy director Pham Thien Long said old loans with interest rates above 15 per cent per year were often in personal property and non-manufacturing areas, whose interest rates are revised every six months or one year.

Lending to production and trading firms often have interest rates revised every three months or even one month in case of market volatility. Long said revising old loan rates to 15 per cent per year was mainly applicable to personal credit segment.

Old loans with interest rates above 15 per cent per year at HDBank accounted for just a small proportion of 20-25 per cent of the bank’s total outstanding loan balances, said Long.

Industry players pointed out the profit amount banks would loose when scaling down old loan interest rates to 15 per cent, per year would amount to VND16,500 billion ($78.5 million).

At Vietcombank whose lending amount occupies 8 per cent of the banking sector’s total outstanding loans the lost profit from driving down old loan interest rate to 15 per cent per year is estimated at VND1,800 billion ($85.7 million), according to the bank’s general director Nguyen Phuoc Thanh.