State Bank backs bonds to fund works worksprojects

“Banks use most of their funds to loan national projects requiring a huge amount of capital,” central bank governor Le Duc Thuy said.
“This leaves little for the private sector.
“We suggest capital raised at high interest rates should be reserved for creditworthy borrowers such as efficient private businesses who can afford similar rates on borrowing, not state-owned firms or national projects whose returns are often low,” he added.
Vietnam can learn much from China’s capital allocation policy, he said. The Chinese government has told commercial banks to separate commercial loans from policy loans; capital mobilised through commercial channels is used for commercial loans while government bonds are used to fund public projects.
“This policy works very effectively and has helped allocate capital to lenders who can use it effectively, as per market rules,” Thuy pointed out.
However, the governor rebutted public opinion that lending rates in Vietnam were too high to attract investors and, as such, lowered the effectiveness of credit.
Lending rates at Vietnamese commercial banks average 10 per cent while return on capital at state-owned enterprises is estimated at just 7 to 8 per cent.
“It is true to a certain extent that if lending rates are higher than the return on investment of an enterprise, they will discourage borrowing, especially considering state-owned enterprises are the main clients of Vietnamese banks,” Thuy said.
“But, to assess the reasonability of the interest rates we should look at the profit-to-investment ratio of all kind of enterprises, including private, household and even farming, not just state-owned ones even though they are the main customers.”
A recent World Bank survey showed that the profit ratio for small- and medium-sized enterprises in the Mekong Delta was as much as 30 per cent.
Senior economist Le Dang Doanh agreed with Thuy: “Interest rates are not too high if we examine them from the angle of private and efficient enterprises”.
“So, the key issue for Vietnam is not lowering [bank] deposit rates but creating more conducive conditions for private businesses to access loans,” he said.