Lending slump drives Vietnamese banks to deposit money abroad

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A worker at a rubber factory. Most companies in Vietnam are unwilling or unable to borrow from banks, who are resorting to depositing money abroad. Photo courtesy of Saigon Tiep Thi

With the stagnant economy making lending difficult, banks have resorted to making deposits abroad, analysts said.

Overseas deposits reached US$2.5 billion by the end of June, Le Xuan Nghia, former deputy chairman of the National Financial Supervisory Commission, was quoted by Saigon Tiep Thi as saying at a conference last week.

A central bank report said the dollar has strengthened against the dong since early June because banks bought dollars to deposit overseas since they make little money at home.

Credit grew by just 4.5 percent in the first six months against the full-year target of 12 percent.

According to a first-half report by Ho Chi Minh City's Statistics Office, lending in the country's commercial hub has been slow.

Businesses are plagued by high inventories and low demand, while individuals are either jobless or earn less, it said.

NamA Bank recently cut interest rates on mortgages to 10-12 percent, but still has few takers.

Tran Du Lich, a government financial advisor, said even if businesses have demand for credit, many small and medium-sized ones no longer have collateral to offer.

In the city, loans outstanding rose to VND877.5 trillion ($41.4 billion) in June, a marginal 0.47 percent from the previous month and 2.6 percent from the beginning of the year.

Interest rates have more than halved from 2011 to 9-10 percent, but that has not enabled credit growth at many banks.

Major state-owned lender Vietcombank reported a 1.1 percent credit decrease, while private lender Eximbank, which entered the world's top 1,000 two years ago, said credit growth has been just 5.7 percent against a 15 percent target for the year.

The bank is offering credit at 7 percent to exporters, but even large companies have said they do not need to borrow, Eximbank general director Truong Van Phuoc said.

Banks used to resort to the interbank lending market in troubled times, but the interest rate has dropped to 1-1.5 percent now, making it unprofitable, he said.

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