State Bank keeps lid on credit growth, interest rates

Credit has grown by 7.05 per cent since December last year, well on pace to meet the 20 per cent limit for the year set on commercial banks by the central bank, State Bank of Viet Nam Governor Nguyen Van Giau said yesterday in a press conference in Ha Noi.

 

Giau said that growth in Vietnamese dong-denominated lending during the period remained low, at 2.7 per cent, while the rise in US dollar loans was more alarming, at 22.2 per cent.

Short-term credit rose 6.17 per cent, while medium – and long-term credit surged by 7.66 per cent, he said.

With overall credit growth of 10.97 per cent during the period, production and export industries accounted for 83 per cent of total loans made by commercial banks during the period. Lending to non-production sectors fell by 9.46 per cent against late last year, consistent with the Government’s instruction to commercial banks to shift priority in lending to productive industries and away from non-productive uses such as real estate development or securities investment.

Lending interest rates in dong during the period averaged 18.7 per cent, up 3.4 per cent against December, while average interest rate for dollars, at 6.4 per cent, remained equal to the December average.

Meanwhile, Giau noted, credit growth so far this year has outpaced deposit growth at commercial banks, which reported an increase of only 2.37 per cent in deposits. This was reflected in rising deposit interest rates averaging 1.15 per cent for dollar deposits and 8.89 per cent for dong deposits.

Commercial banks themselves found it easier to access dollar sources in the first six months of the year, Giau said. The value of the dollar against the dong was once again falling on the interbank market, and banks’ published buy/sell rates for dollars were sometimes even lower than those on the interbank market.

Though not disclosing the exact total of foreign currency reserves, Giau said that they had risen in the first half of the year, leaving the State Bank with fewer difficulties involving exchange rate management.

Dollar remittances in the first half of the year also surged by roughly 10 per cent against the same period last year, Giau said.

Despite the positive information about the foreign exchange market, the dollar appeared to be regaining strength yesterday. Vietcombank yesterday listed its dollar/dong buy/sell rate at VND20,700/ 20,800, an increase of VND145/185 over the previous day and the highest level since April.

The shift also lifted domestic gold prices to nearly VND38 million per tael despite a decrease on the world market. (One tael is equal to 1.2 ounces.) In Ha Noi, buy/sell rates were listed at VND37.85-37.91 million in the afternoon, up VND50,000-70,000 over the previous day.

Giau on Thursday also called on credit institutions to comply with regulations on Viet Nam dong deposit interest rates, in accordance with a new circular issued on March 31.

Holding the line

The maximum interest rate that banks would be allowed to apply when mobilising deposits from organisations and individuals (including promotional expenses) must not exceed 14 per cent a year. In addition, credit institutions would be required to make their interest rates public.

The State Bank called on commercial banks to keep the cost of reducing interest rates and lending at reasonable levels, especially in terms of agricultural and rural development, export, small- and medium-sized enterprises and support industries.

In addition, the State Bank suggested more inspections by supervision agencies and State Bank branches throughout provinces and cities in order to strengthen banking activities and hold banks accountable for their conduct.

The State Bank urged the Banking Association to ensure that its members complied with the new regulations on deposit interest rates, additionally calling on local governments across the country to co-operate on efficiently dealing with violations.

Despite the new regulations, it has been reported that some banks are still raising deposit interest rates that cause higher lending rates from banks, making it difficult for many businesses in need of production capital.

Following new State Bank instructions on assisting businesses experiencing financial difficulties, some commercial banks have started offering new measures in order to support companies.

According to Vietinbank, it has carried out a programme based on preferential lending rates for eligible businesses such as textile, footwear and mechanical engineering, who would be offered total loans of VND20 trillion (US$966 million) at a lending rate of 2.5 per cent lower than normal.

The Maritime Bank expect to reduce lending rates by 0.5 per cent in accordance with State regulations. — VNS

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam interest rates