Twin king issues leave many perplexed

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Addressing a meeting on the implementation of measures to support socio-economic development in Ho Chi Minh City in early April 2013, State Bank of Vietnam (SBV) governor Nguyen Van Binh assumed the mobilising and lending rate could further drop if inflation fell to below 7 per cent this year.

Binh said though the market had witnessed positive changes, more efforts were still needed to reach the set economic growth of more than 5 per cent in 2013 since hardships still prevailed.

“Efforts will gear towards bringing the interest rate down to below 7 per cent, per year for short-term loans with 0.25-0.5 per cent cut each time, albeit we are still not sure whether actual inflation rate would be lower than the expected level,” said Binh.The National Assembly has set inflation target at around 8 per cent this year.

Binh said medium and long-term loan interest rates would further softened, but firms needed to wait more time since this type of credit was modest at banks. In fact, up to 80 per cent of bank capital was short-term loans, while banks were eligible to use only 30 per cent of this source for medium and long-term lending.

In this context, bad debts still remain a thorny issue.  

According to SBV’s Ho Chi Minh City branch office director To Duy Lam, the bad debts of city-based commercial loans remained high. Of this, group five potentially irrevocable debts account for 62.8 per cent of the city’s total bad debts which mainly involve financial leasing firms.

An executive at giant state-owned Agribank, the bank’s non-performing loans currently made up 5.9-6 per cent of its total outstanding loan balances, mainly in the property sector.

This year, Agribank sets to achieve credit growth of 11-12 per cent, per year, gradually lowering loan amounts in non-priority areas and boosting credit in rural areas.

Pursuant to SBV’s Circular 02/2013/TT-NHNN on asset classification, risk provisioning and utilisation of provisioning by credit institutions and foreign bank branches which will come into force from June 2013, Agribank’s bad debts in Ho Chi Minh City areas will jump to VND7.892 trillion ($376 million) (up 69 per cent) after Circular 02’s enforcement, seriously affected bank operations.

The bank executives then wanted the SBV to reconsider enforcement of Circular 02 to have more time for rescheduling loans, from there lowering bad debt rate.

ACB general director Do Minh Toan assumed the SBV did a smart job with handling monetary policies in the past year. For instance, lending rates to priority areas shed significantly from 15 per cent, per year in mid-2012 to 11 per cent at present.

Toan, however, assumed the interest rate was now not the single concern of borrowers, but fueling market demand should be held at foremost importance.

Eximbank chief Truong Van Phuoc shared the same view but stressing the need to feed the market with more capital sources.