Temporary stabilisation in banking and finance market

Stocks started to climb from the lowest bottom of the year [recorded on May 26] as the interest rates of dong signaled to go down. Actually the decrease in the interest rates was very modest.

A survey in HCM City made by the Saigon Tiep Thi magazine indicated that the lowest lending rate of the dong still stayed at 20.5 percent a year while the highest was not able to be reported. Banks said that the lending rate ranging between 20 and 21 percent per annum was moderate, without extra fees and costs. The extra fees depend on purpose of loans, time and capital size as well as collaterals.

The fact is that many banks reached the ceiling credit growth of 20 percent for this year and now they focus on withdrawing debts. Meanwhile, enterprises are hesitant in taking bank loans with high costs because doing business to earn a profit of over 20 percent to pay bank debts is very difficult, excluding costs for wage, equipments and materials [called input costs].

In addition, the State Bank of Vietnam (SBV) pumped a huge volume of dong to rescue the banks with weak liquidity through re-financing. According to the Lao Dong newspaper, the Central Bank refinanced 70 trillion dong to some banks.

Credit growth by May 23 was 6.2 percent, equivalent with the absolute figure of 135.8 trillion dong as announced by the SBV Governor Nguyen Van Giau. Hence, the refinancing volume was equal to more than a half of Jan-May credit growth.

Clearly, money is being pumped into the economy, which is leading to high inflation risks and banks are facing serious lack of liquidity.

Furthermore, the refinancing has affected to the capital pumping for US dollar purchase in the market. Despite the demand and supply of US dollar are meeting favourable conditions, the US dollar volume that SBV purchased for increasing forex reserve remained small.

Lately International Monetary Fund (IMF) estimated that Vietnam’s forex reserve reached $13.5 billion which was able to be added over $1 billion that the SBV recently purchased.

Compared with 2007 when the reserve peaked at $23 billion, the figure so far has declined by $9.5 billion. – Vietniz24

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial