Hard to Lend

Interbank rates of Vietnamese dong are declining and staying at very low level. In the second half of April, overnight rates on the interbank market dropped to 6.69 percent per annum; one-week and two-week rates were respectively 5.79 percent and 5.93 percent; and rates of longer terms were commonly at 10 percent. Six-month rate peaked at 12.04 percent. The downward trend was asserted on May 3 when overnight rates dipped to 6.91 percent per annum, the two-week rate at 4.72 percent, and the six-month term at 8.69 percent. One-week rate slid to 3.91 percent per annum. This stability proved that commercial banks had escaped from prolonged liquidity strains and the amount of available capital is abundant.

 

According to data released by the State Bank of Vietnam (SBV), it pumped VND9,055 billion of 7-day term into OMO market at an interest rate of 12 - 13 percent per annum and drew VND10,962 billion from this market. The central bank also issued bills worth of VND51,431 billion with maturity terms of 28 days, 91 days and 182 days with interest rates ranging from 6.2 percent to 12.5 percent. In April, this agency drew VND53,338 billion from repo and bills operations. Notably, in April, bills rates declined day after day. The drop in interbank interest rates certainly resulted to a decline in bills rates.

 

In a meeting in mid-April, SBV Governor Nguyen Van Binh informed that the central bank withdrew VND45,000 billion from bill issuances with maturity terms of one, three and six months from mid-March to early April 2012.

 

Declining interbank rates, bills rates and the big value of transactions proved the availability of working capital at banks.

 

According to the market law, when commercial banks have excess money to lend, deposit rates will be reduced. However, it seems not to be the case for the time being. Deposit rates always stay at the upper limit of 12 percent per annum imposed by the central bank. Besides, lending rates are always very high, hovering at 17 - 20 percent per annum, except for prioritised fields.

 

A very important indicator is the negative credit growth, minus 1.96 percent, in the first quarter. This showed that capital is clogged up in businesses even though they are short of capital. The number of bankruptcies and dissolutions may be the surface of difficulties lying in the business community. Contracted production and poor financial health bar companies from accessing capital. Indeed, many companies are disqualified for bank loans while others are too exhausted for reinvestment for production development. Meanwhile, banks are more careful with new loans although borrowers have security assets. The door to bank loans is almost shut to some sectors like real estate.

 

With the government-backed interest rate cut orientation, many businesses hoped to reschedule high-rate loans to borrow new ones. A construction company borrowed VND220 billion with an interest rate of 24 percent per annum from banks but the value of currently payable debts fell to VND50 billion, at rebated rate of 22.5 percent. Many banks reported to reduce lending rates to less than 20 percent per annum. They very much wanted to borrow from banks with lower rates but they have no other sources to pay old debts.

 

Aiming to reduce bad debts and reschedule debts for troubled companies, banks have launched many soft loan programmes this year. In early April, Great Asia Commercial Joint Stock Bank (DaiABank) announced a VND1,000 billion credit programme to fund corporate restructuring. Each customer can borrow up to VND30 billion in 3 - 5 years at an interest rate of 14 - 19 percent per annum. However, this lender has not received many applications from customers.

 

To help businesses to deal with high-rate debts, many banks allowed them to reschedule debts. Some quickly lent their customers to borrow new loans to repay old ones. Even big banks like BIDV have also funded companies without enough money to carry out investment projects, procure fixed assets and improve financial health. The State-owned lender also permitted its corporate customers to restructure cash flows and financial assets to deal with capital unbalance.

 

In fact, when banks resort to this tactic, they care about their benefits first of all. Restructuring potential bad debts will make their balance sheets nicer and reduce book debts. Meanwhile, companies will have a more pleasing period because they have to pay less interest.