SBV will inspect banks with overly high interest rates

Denying the possibility of a tightened monetary policy, State Bank of Vietnam (SBV) Governor Nguyen Van Giau, in an interview with VnExpress, has also threatened to discipline commercial banks acting contrary to the Government’s instructions to ease interest rates.

VnExpress: Many financial experts believe that SBV should lessen its grip on the capital inflow and outflow to support economic growth. What is your viewpoint?

Nguyen Van Giau: It is really a difficult task to manage monetary policy to obtain two goals at the same time, stabilizing the national economy and fostering economic growth. However, with the policies applied, especially the monetary policy, I strongly believe that SBV has played a very important role in the economic achievements that we have obtained in the last five months.

In fact, the State Bank has not tightened monetary policy so far this year. The adjustment of the basic interest rate from seven percent to eight percent in 2009 does not mean that SBV tightened the monetary policy.

All of the things SBV is doing now is using tools, except the adjustment of the compulsory reserve ratio, to regulate cash inflow and outflow.

VnExpress: However, the credit growth rate in the first five months of 2010 in the whole banking system was just eight percent, far below the 25 percent targeted for the year. Will the low credit growth rate be able to support economic growth?

Giau: The credit growth rate of the banking system in May was 1.7-1.86 percent, which means that in the first five months, credit growth was eight percent. I think that this is a reasonable rate to obtain a GDP growth rate of 5.83 percent in the first five months, while we can still curb inflation.

VnExpress: Regarding credit growth, many financial analysts think that problems exist in the structure of outstanding loans, when the growth rate of outstanding loans in foreign currencies is much higher than those in dong. What would you say about that?

Giau: It is true that outstanding loans in foreign currencies have increased vigorously. By May 25, outstanding loans in dong had increased by 2.45 percent over late 2009, while those in foreign currencies increased by 25 percent.

However, I have to say that the foreign currencies that banks have lent are mostly the banks’. Previously, banks deposited foreign currencies at foreign banks and withdrew the money to lend domestically. Therefore, there is no risk to the foreign currency balance.

However, the State Bank still set up an inspection team that gathered four department heads. The inspectors made surveys at four state-owned banks, eight joint-stock banks and four finance companies.

The survey showed that banks mostly lent to export companies, calculated at $1.4 billion out of two billion dollars. The remaining sum of money was lent to import companies. In all cases, import companies must pay foreign currencies back to the banks.

VnExpress: Also regarding credit structure, some analysts say that many loans have been going to the non-production sector. What would you say about that?

Giau: I don’t think so. In the outstanding loans structure, loans going to the non-production sector account for only 17.8 percent. In the first five months of 2010, when outstanding loans increased by eight percent, those in the non-production sector increased by just 1.89 percent.

VnExpress: The State Bank has instructed commercial banks to slash deposit interest rates to below 11.5 percent. However, some commercial banks have raised rates again. What will SBV do to settle the problem?

Giau: In the immediate time, the State Bank will examine commercial banks that have deposit interest rates over 12 percent. Interest rates at overly high levels is contrary to the Government’s instruction to ease interest rates.

VnExpress

Tags: vietnam bank, Vietnam finance, Vietnam financial, Vietnam State Bank