Low loan absorption becoming a serious problem, experts say
A client applies for a loan at a commercial bank in Ho Chi Minh City
Bankers say credit access has been eased but local businesses, struggling with low sales and large inventories, are absorbing loans at a very slow pace.
The Dai A Bank announced early April that it will lend a total of VND1 trillion (US$48 million) to corporate clients at interest rates as low as 14 percent a year. Eligible companies would be allowed to take out loans of up to VND30 billion for three to five year terms, it said.
However, since the launch of the program, it has not received many applications, the bank said, adding it would take some time for lending to start picking up.
Ly Xuan Hai, general director of Asia Commerical Bank, said lending increased slightly after the bank lowered its interest rates, but whether the trend could last remains to be seen.
Hai said businesses are not borrowing despite lower interest rates. What they need now is higher market demand because they are facing huge stockpiles, he said.
Most banks have set interest rates of between 15.5 percent to 19 percent, compared to 16.5-19 percent at the beginning of April, the State Bank of Vietnam said in a weekly report Tuesday. The lowest rate applied to exporters and agricultural producers was 12 percent, it said.
Earlier this month the central bank cut its policy interest rates for the second time in less than a month, after bank lending dropped 0.4 percent in the first quarter.
The central bank is determined to cut interest rates to make credit more accessible by taking a series of measures, Governor Nguyen Van Binh said. However, he warned banks against lending recklessly, saying executives would be fired if their banks offered loans to companies with high risk.
A credit manager at a bank who requested anonymity said the problem of poor loan absorption was alarmingly serious. Businesses are not borrowing because of their own difficulties while some banks were also being cautious about lending. Some sectors, including steel and construction materials, are being totally turned down by banks, he said.
The central bank had tightened monetary policies last year as part of measures taken to control inflation and stabilize the economy.
It began to ease its restrictions this year, after credit was reported to have grown by 10.9 percent in 2011, lower than the target of 15-17 percent. Last week the government revised last year's credit growth to 14.41 percent.
Inflation slowed for an eighth consecutive month in April to the lowest rate in a year. Consumer prices climbed 10.54 percent from a year earlier, compared to 14.15 percent in March, according to the General Statistics Office.
"The decline of inflation is not really good news. It is due to large declines in purchasing power and industrial growth," economist Pham Chi Lan told AFP.
"Some 14,000 enterprises have gone bankrupt or ceased production since the start of the year. A serious stagnancy has hit Vietnamese economy," she added.
The central bank has allowed commercial banks to extend payment deadlines for corporate borrowers that are capable of repaying loans later, the government said in a statement on its website Monday.
Nguyen Thi Hong, head of the central bank's monetary policy department, said amid tough economic conditions, banks need to cooperate with their clients to solve loan and repayment problems. When companies overcome their difficulties, business will improve for banks as well, Hong said.
The Bank for Investment and Development of Vietnam last week began to lend to companies with strong performance but facing temporary financial problems. A representative of the state-owned lender said saving businesses will also help save banks.
With interest rates now on a decline, several other banks have decided to offer new loans to their clients so that they can repay or restructure previous loans that they had borrowed at very high rates. According to the banks, the policy is necessary as bad debts are increasing.
The bad debt ratio in Vietnam's banking system rose to an average of 3.6 percent of total loans as of April 11, up from 3.2 percent at the beginning of the year, according to the central bank.