Despite low loan growth in the Vietnamese banking system, banks are lending with extra caution to avoid more bad debts.
The State Bank has recently said loans fell 0.16 percent in the first two months of the year. It targets a loan growth of 12 percent this year.
In a Sai Gon Tiep Thi (Saigon Marketing) report, Nguyen Thanh Toai, deputy director of leading lender ACB, refused to provide specific figures but said that loans at his bank are expanding at a "very slow" pace.
The head of a commercial bank in Hanoi, who requested anonymity, said banks had to make the "harsh choice" in order to avert the threat of more bad debts, which hit the banking sector like a ton of bricks last year.
The central bank said on February 28 that non-performing loans have been reduced to 6 percent from the 8.82 percent estimated last September. Nguyen Huu Nghia, the central bank's chief inspector, said the decrease of bad debts is due to banks' careful examinations before lending and attempts to make more risk provisions.
However, banks have a dilemma on their hands as they refuse to lend to companies with high interest rates of 12-13 percent due to bad debt concerns and they are being refused by those who say they cannot afford the offered rates of 8-10 percent, said the same unnamed bank director.
Many companies that meet the strict lending criteria are reluctant to borrow from banks amid the economic slowdown.
Meanwhile, a recent report, conducted by the central bank's monetary statistics and forecast unit, revealed that banks have so far tended to limit loan grants for companies in the real estate and securities sectors this year.
The two sectors, especially property businesses, are thought to be most vulnerable to the bad impacts of the country's ongoing economic crisis.
Real estate loans totaled VND203 trillion (US$9.7 billion) as of the end of last August, of which 6.6 percent turned bad. Bad real estate debts made up for nearly 5 percent of the overall bad debts.
Le Duc Tho, deputy director of major lender Vietinbank, said his bank has lowered the rates to 8-9 percent for the manufacturing sector.
Lending rates at banks have dropped to 9-10 percent to boost loans but banks are expecting the central bank to decrease the cap rates for larger lending cuts.
But Cao Sy Kiem, member of the National Consulting Council of Monetary Policy, forecast that monetary regulators would come under scrutiny in deciding to decrease the interest rates due to the threat of high inflation looming over the country.
Consumer prices climbed 2.5 percent through the first two months alone while the government hopes to keep inflation below 6 percent this year.
Le Xuan Nghia, former chairman of the National Financial Supervisory Commission, said the central bank may not cut the rates until the second half of the year, and by 1 percent to the most.
Other solutions besides bank loans
While the current economic situation is a hindrance to bank loans, a swathe of companies are growing a tendency to seek other solutions to rescue their businesses, said Van Duc Muoi, general director of food company Vissan.
He said 120 members of the Vietnam Food Association have been lending and borrowing amongst other to carry on their businesses.
Luong Tri Thin, chairman of the Dat Xanh Group, said his company paid off its debts to banks last October and does not intend to borrow from banks as it is performing very well after a business expansion, from a trader only to a new housing developer and investor.
The company has issued more stocks to raise its chartered capital to $20 billion from $15.3 billion, he said.
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