Credit sluggish as banks prefer bond purchases

TN News

Email Print

Local commercial banks are more interested in bond purchases than providing loans, making the goal of lowering interest rates hard to reach, a senior government advisor said.

Interest rates have been high as capital flows do not move freely in the banking system in accordance with supply and demand, Le Duc Thuy, chairman of the National Financial Supervisory Commission, told Thanh Nien.

A tightened monetary policy has blocked money inflows, he said, noting that a restriction on interbank deposits prevents banks from lending their surplus cash to others.

The funds are flowing into government bonds instead, he said.

"At first look it seems like banks are losing money because they pay 11.2 percent on deposits and then invest in bonds with a yield of 10 percent," Thuy said. "But in fact banks can use government bonds to get loans at the central bank's refinancing rate of only 7 percent, hence (they make) a profit."

"This is how banks have been doing their business, and it makes sense they are not interested in lending," he said.

Thuy said the government should have sold its bonds to the central bank because right now it's large commercial banks that benefit the most, leaving interest rates at high levels.

Prime Minister Nguyen Tan Dung in May told the State Bank of Vietnam to order lenders to bring down borrowing costs to 12 percent and cut the deposit rate to 10 percent.

The central bank said Wednesday that deposit rates were between 10.6 percent and 11.2 percent while lending rates ranged from 12 percent to 15 percent.

Vietnam's "repeated" calls for commercial banks to lower their lending rates after tightening policy may damage market confidence, the International Monetary Fund warned this week.

More Business News