Vietnam lenders struggle to cut credit

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Commercial banks say they are facing difficulties in complying with central bank directives to reduce credit in the non-manufacturing sector in the short term, as most loans already issued are long and medium-term ones.

The State Bank of Vietnam has ordered all lenders to cap credit to the non-production sector at 22 percent of total loans by June 30, and at 16 percent by the end of the year.

The central bank said it will double reserve requirements for banks that fail to curb their credit growth and continue to lend to non-priority sectors.

Truong Hoang Luong, chief executive officer of Kien Long Bank, said his bank's credit to non-production sectors now is just below 30 percent of total loans. It would be difficult to bring it to below 22 percent in a month's time.

"Banks offer medium or long-term credit of five to 10 years to real estate businesses. So, it is impossible to force them to pay loans before due day," he said.

Tran Ngoc Hai, head of the credit department of Mekong Housing Bank, said his bank has lent to property developers, and is facilitating loans for customers so they can buy apartments.

Banks would find it hard to collect debts if the investors are not able to sell their products, he explained. "Thus, it is very difficult to curb credit to the non-production sector to 22 percent by June 30."

The bank has lent some VND1 trillion (US$50 million) to individuals and households for building or repairing their houses over the last 10 years, he said. "It is impossible to close the loans by late June, as customers often make payments every three months."

Nguyen Van Hoang, deputy general director of Dai A Bank, said his bank is turning down loan applications from the non-production sector. At the same time, the bank is trying to convince other customers to settle their loans before they are due, he said.

The banks also say that reducing credit to the non-production sector will affect their profit significantly, as loans to this sector account for a large portion of lending.

Hoang said his bank is trying to expand to the production sector. However, given the high interest rates of over 20 percent per year, it is not easy to find clients, he said.

Lending is the main business of banks, and it is difficult to earn profit from other services, Hoang said, adding that many banks have no choice but to "accept lower profits."

Luong said his bank is focusing on traditional customers or those who need small loans and accept high interest rates.

"In the context of high interest rates, banks will face a big risk if offering big loans to firms, because very few earn enough to pay interest rates of over 20 percent per year. Customers with small loans will find it easier to pay them," he explained.

Vietnam posted a credit growth of more than 5 percent in the first four months of this year, which is in line with the target of keeping it at 20 percent for the year, according to the State Bank of Vietnam.

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