Interbank market: borrowers delay paying their debts, lenders feel worried

Four HCM City-based commercial banks borrowed 1475 billion dong from another bank, but they have been repeatedly asking for the delay of debt payment. Feeling worried about the insolvency, lenders now ask borrowers to show assets to mortgage for the loans – the thing which has never been seen on the interbank market.

Asking for debt payment delay, paying debts in dribs and drabs

According to the manager of a state owned bank, in the last 10 days, the State Bank of Vietnam has been actively pumping capital through OMO (the open market operation).

In the week from November 14 to November 18, the State Bank pumped 34 trillion dong to the market, and absorbed 28 trillion dong, which means the net capital provided of 6 trillion dong. In the last days of the previous week, the capital provided by the State Bank satisfied 70-8- percent of the demand.

However, the liquidity problem still has not been settled to the every root. The overnight and one-week interest rates applied by the banks were 14-16 percent late last week. Vietcombank unexpectedly offered the loans at 12-13.5 percent only, but it required mortgaged assets for the loans.

Explaining this, general director of a bank said that bankers now feel insecure with the transactions on the interbank market. “If you do not have mortgaged assets, no one would lend money to you, no matter how high the interest rates you pay,” he said.

The banker went on to say that a lot of banks borrow money from other banks but do not pay debts on schedule. They repeatedly ask for the delay of debt payment, thus making creditors feel worried.

He said that he has lent more than 1400 billion dong to four commercial banks in HCM City, but the banks have not paid debts, though they should have paid several months ago. Of the borrowers, there is a bank which only pays several billion dong each time.

Feeling worried about the debt payment capability of the bank, he asked the local branch of the State Bank to check the borrower’s asset balance and received the answer “the bank is still in good conditions.”

“Why doesn’t it pay debts if its conditions are good? It is clear that it provided wrong figures to the State Bank,” he doubted.

Some state owned banks have followed the move of Vietcombank, asking the borrowers to show the mortgaged assets in order to be able to borrow their money.

“In some cases, we provide loans without requiring mortgaged assets, but this only applies to loyal clients. If not, borrowers have to have collaterals – real estate or gold with the values equal to the values of the loans,” he said.

An official of the Vietnam Banking Association said that the situation has been existing for two months on the market. As the interbank interest rate climbs to 30 percent per annum, lenders have to set up strict requirements to preserve their capital.

Therefore, commercial banks have to push up the mobilization of capital in gold from the public, so that they can use the gold as the collaterals to borrow money from other banks on the interbank market. As a result, the gold interest rate has been pushed up.

Some creditors have asked the State Bank of Vietnam to refinance the banks which have liquidity problems, so that they can have money to pay off debts.

According to an expert, the transactions on the interbank market aim to satisfy the urgent liquidity demand of credit institutions with very short term loans (overnight, one-weak term loans). However, as a lot of banks have been facing big liquidity problems due to the tightened requirements set by the State Bank, they have to “play tricks”: they borrow money from other banks and then delay in debt payment so as to have capital to settle their problems.

Source: TBKTVN

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