Bankers say circular a tumbling block

Banks have protested the central bank over a circular due to take effect in October, saying the legal document makes it impossible for credit institutions to lower lending rates as told by the Government.

Banks have protested the central bank over a circular due to take effect in October, saying the legal document makes it impossible for credit institutions to lower lending rates as told by the Government.

In a petition lodged to the State Bank of Vietnam on July 30, bankers said they could not cut the lending rate to 12% a year by end-2010 as instructed by the Government, as the circular will reduce their current capital to make loans.

The Vietnam Banks Association on behalf of 14 banks sent the petition to the Governor to pinpoint illogical provisions in Circular 13/2010/TT-NHNN on safety ratios in banking operation, saying the rules would choke off capital sources.

Duong Thu Huong, general secretary of the association, told the Daily that safety ratios regulated in the new circular would indirectly hamper banks in cutting lending rates.

The circular, issued in May, forbids banks from making total loans higher than 80% of the total mobilization, a ratio seen as normal in operations at most banks. However, what is unusual is that mobilized funds must exclude call deposits from institutions, while this capital source normally accounts for 15% of a bank’s mobilization.

“Therefore, banks’ current capital amount will be lower,” she explained.

Furthermore, the new circular also narrows funds for stock and real estate investments when regulating a high risk coefficient rate of 250%, meaning banks will have to boost capital if they want to increase loans for these sectors.

Therefore, Huong said, the association had suggested the central bank to reconsider and remedy these issues as well as extend the date of effect for the circular because two months left is too short for banks to meet the regulations. – Saigon Times

Tags: Vietnam banking industry, Vietnam Circular 13, Vietnam finance, Vietnam financial