Credit institutions facing barrier on non-production debts

With an expectation that it is impossible to cut non-production lending rates to below 22 percent per annum by the end of June, some commercial banks are planning to propose a loosened policy from the State Bank of Vietnam, the Nhip Cau Dau Tu magazine reported.

As announced before, by late June, the SBV could impose a higher compulsory reserve ratio (CRR-that may be doubled the current rate) if commercial banks cannot bring down the non-production lending rate on total outstanding loans ratio to 22 percent.

Factually, many lenders are managing to comply with the regulation by two ways: or raising total outstanding loans through boosting production lending, or limiting non-production lending.

But, under current rule, banks have to curb credit growth rate of less than 20 percent within this year while lending interest rates are climbing to a new high of more than 20 percent per annum. Therefore, it is not easy for lenders to increase production outstanding loans. Finally, banks have to tighten up non-production lending.

Non-production lending rate (on total outstanding loans) of Mekong Delta Housing Development Commercial Joint Stock Bank (MHB) now stands at 25-26 percent whereas the target is only 3-4 percent. The bank is very hard to collect debts within more than 1 month to meet the SBV’s regulation. But 10 years ago, MHB had provided loans to individuals and households to repair and build houses with a ratio of between 40-50 percent on its total outstanding loans (equaling to 1 trillion dong) at that time, according to its head of credit department, Tran Ngoc Hai.

Ocean Commercial Joint Stock Bank or OceanBank also stressed that its non-production loan on total outstanding loan ratio now was less than 30 percent. Its chairman Ha Van Tham said, increasing production outstanding loans is only measure. In this current context, his bank should conduct measures synchronically and differently in which enhancing the collection of debts was concerned.

A Hanoi-based banker expected that the Central Bank does not need to double CRR as ruled. He may propose SBV to categorize outstanding loans of commercial banks into two kinds: old and new debts. New debts must comply with the regulation that non-production lending rate is no more than 22 percent on total outstanding loans by late June but old ones should be considered in each case to get suitable decision.

Clearly, as for the banks who have revenues mainly from credit operations, the adjustment in non-production lending on total outstanding loan ratio will hamper and affect their profits. But the affect has not been clear in short run because old loans (especially medium and long-term loans) have not matured.

In order to ensure long term profits along with reaching the non-production lending on total outstanding loan ratio of below 16 percent by the year end, commercial banks will have to modify their lending structure as well as revenue plan. – Vietbiz24

Posted by VBN on May 19 2011. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry