Tellers work with customers at Asia Commercial Bank in Ho Chi Minh City. Photo courtesy of Tuoi Tre
Credit flow has been sluggish in the banking system so far this year with most firms wanting cheaper loans and banks being very cautious about lending.
A recent report by the Ministry of Investment and Planning showed that, as of January 20, loans had dropped 1.21 percent from late 2013.
The report described the reduction as significant, saying the credit congestion could threaten business recovery and economic growth.
The central bank says interest rates for loans in preferential sectors like agriculture and export have been cut to 7-9 percent a year, and in other sectors to 9-11.5 percent for short-term loans and 11.5-13 percent for middle and long-term ones.
But businesses say they need long-term loans at less than 10 percent.
To Hoai Nam, vice chairman and general secretary of the association of Small and Medium Enterprises, said more than 90 percent of Vietnamese businesses are SMEs, and they have been unable to access bank loans for a long time.
“They are still struggling to survive.”
Banks are only willing to lend against mortgaged assets, but SMEs typically do not have much value to offer in terms of collateral, Nam said.
“Banks need to look into the firms’ business plans and ease restrictions if the plans look effective and practical,” he said.
He said saving SMEs will boost employment rate and social security, which is a big mission in which the government must pitch in by issuing guarantees.
Economist Tran Du Lich, former head of the Ho Chi Minh City Economics Institute and now deputy head of the city’s delegation of National Assembly deputies, also said the central bank needs to help businesses if this year’s growth target of 5.8 percent is to be realized.
Meanwhile, reports from major lenders show massive layoffs and significant reductions in profit last year as credit shrank and banks had to increase their risk provisions.
According to a Tuoi Tre (Youth) newspaper report, Eximbank announced pre-tax profits of VND827 billion (US$39.22 million), a 71 percent drop year-on-year as its income from loans and deposits dropped 45 percent and its foreign currency section lost more than VND113 billion.
Its bad debt rate at the end of 2013 rose to 2 percent from 1.3 percent at the beginning of the year.
The bank laid off 340 employees in the fourth quarter, three times its workforce reduction in the other three quarters. It said some staff members quit on their own while others were sacked for violating regulations.
The Asia Commercial Bank in the last quarter also ended contracts with 217 people, downsizing its workforce by 17 percent.
It reported a fourth quarter loss of nearly VND293 billion, with lending revenues dropping 45 percent.
Both banks said they have no further layoff plans this year.
Techcombank’s pretax profit also dropped 13.7 percent from 2012. A source said it was reluctant about lending, keeping the loan per deposit rate at 57.31 percent.
The source said the bank has been focusing more on debt recovery than lending.
Sacombank’s loans increased but its interest income dropped in the fourth quarter as rates were cut.
Phan Huy Khang, general director of Sacombank, said 85 percent of banks’ income comes from interest rates, so their reduction in 2013 have strongly affected banks’ earnings.
“The central bank plans to cut the rates by a further 1-2 percent to stimulate production. We have boosted other services to increase income to compensate for that,” Khang said.
Nguyen Duy Phong, a Ho Chi Minh City-based analyst at Viet Capital Securities, said the banks’ stories are not surprising as interest rates have been cut and bad debts have come to roost.
Nguyen Tri Hieu, an independent director of Ocean Bank, said banks are bearing the consequences of very fast growth several years ago, when they were too willing to lend money, raising their asset growth to three to four times that of GDP growth, while the normal difference is around two times.
CENTRAL BANK TO RELAX NEW RULES FOR BAD DEBTS
Local banks said the central bank’s announcement that it will soon
issue a revision to loosen new regulations on bad-debt classification
and risk provisions will provide some relief.
The regulations, known as Circular 02, is to take effect on June 1.
Nguyen Van Binh, governor of the State Bank of Vietnam, Tuesday
confirmed the decision to the Tuoi Tre (Youth) newspaper without
revealing the date of issuance.
Banks have said the one-year deferment of the circular, said to be a
set of stringent rules originally scheduled to take effect last June,
is not sufficient. They said credit growth provisions in the circular
could make it more difficult for enterprises to access loans.
An unnamed general director of a commercial bank in Ho Chi Minh
City said the amendment, which would allow a bad debt not to affect the
classification of other loans given to the same borrower by other banks,
would surely provide some relief.
The circular initially stipulated that a “substandard” to “bad”
loan with one bank would force all other loans of that borrower into the
In Vietnam, assessment of bank loans classifies them into five groups – current, special mention, substandard, doubtful and bad.
The revision would also postpone an initial requirement that if
central bank inspectors send banks a warning note of any loan they find
to contain violations, it would be classified as substandard. The
violation can be a relatively minor one like the lack of appropriate
documents or a customers’ vague purpose for borrowing.
Nguyen Huu Nghia, deputy chief inspector of the central bank, told
news website The Saigon Times that the implementation of Circular 02
without the revision would dramatically push up the ratio of bad debts
in the system from the 5.66 percent estimated for the end of 2013.
He said the bank would apply the strict rules next year, but it
would carry out investigations into banks this year to have a “more
honest picture” of non-performing loans.
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