Lending quagmire forces banks to dodge new laws

The new decision by the State Bank of Vietnam (SBV) to allow commercial banks to apply the negotiation-based interest rate scheme for medium and long-term loans was thought to help promote lending. The results however, have been minimal.

Commercial banks still “dodging” the laws

One week after the SBV decision took effect, borrowers paying bank debts and hoping to get new loans have been asked to sign contracts on medium loans, even though they only want short-term loans.

Commercial banks can define the lending interest rates themselves for medium and long-term loans now, but they cannot set them for short-term loans and must meet the low ceiling interest rate. Medium and long-term loan interest rates are now about 18 or 20 percent per annum, while the ceiling interest rate for short term loans is 12 percent.

T., director of a construction company in HCM City, revealed that the 18-20 percent interest rate is equal to the rate he had to pay before for short-term loans (at that time, the lending interest rate was 12 percent, but he had to pay additional fees that made the actual interest rate climb to 18 percent).

Nguyen Duc Thanh, Director of Tan An Farm Produce Export Company in Long An province, claimed that it is more difficult to borrow capital now. Bank capital is limited and they are only providing capital in dribs and drabs, possibly awaiting new policies from SBV.

A businessperson, who asked remain anonymous, claimed to have paid a debt of 10 billion dong to the bank and wanted to borrow five billion dong more, which was not granted until four months later.

No money to lend

When asked why businesses cannot access bank loans, commercial banks all report that they cannot mobilize lending capital. They now offer the highest possible deposit interest rate of 10.5 percent, but the rate has proven unattractive with depositors.

A director of a HCM City-based joint stock bank branch noted that the interest rate for depositors is 13 percent per annum, if counting gifts and bonus interest rates, but the high rate still has not lured more depositors.

He also observed that deposit interest rates cannot be decided by commercial banks, but by depositors. He explained that one business with 100 billion dong of idle capital demanded the high interest rate plus one billion dong for the deposit, otherwise it will move to another bank.

Dodging the laws by providing medium instead of short-term loans is not the path that banks want to take. The problem is that, under current regulations, banks can use no more than 30 percent of their short-term capital for medium and long- term loans.

Associate Professor Tran Hoang Ngan, a member of the National Council for Finance and Monetary Policies, believes that it would be better for SBV to negotiation-based interest rates for short-term loans as well.

VietNamNet/TT

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