Vietnam's businesses, banks stuck in credit stalemate

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An at the Bank for Investment and Development of Vietnam (BIDV) in Hanoi. Photo: Kham/REUTERS An at the Bank for Investment and Development of Vietnam (BIDV) in Hanoi. Photo: Kham/REUTERS

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Sales-starved businesses in Vietnam remain nonplussed by the cheap, short-term loans on offer, while the country's bad debt-bitten banks refuse to offer anything else.
Businesses remain reluctant to borrow, members of Ho Chi Minh City Business Association said at a meeting with bank executives and the city's delegates at the National Assembly.
The association has distributed thousands of loan applications at conferences; only several were filled out and returned, Thoi Bao Kinh Te Saigon reported.
Do Duy Hung, general director of Ban Viet commercial bank, said banks need businesses more than businesses need banks.
Hung said his bank still has around VND2.45 trillion (US$115.47 million) available to lend.
Nguyen Quang Triet, deputy general director of Eximbank, said their assets are also sitting idle.
Cheap loans come up short
Business representatives at the meeting said that although interest rates have been cut from previous years, loans remain difficult to obtain and are only available in the short term.
Banks are advertising loans at 5 to 6 percent annual interest, but businesses say they usually have to borrow at double those rates.
Representatives from 11 banks operating in Ho Chi Minh City reported that 5-6 percent loans are only available for 1-3 month terms.
Do Minh Toan, general director of the Asia Commercial Bank, said their average interest rate is 9.79 percent, which is around 4 percentage points above their deposit rate.
The bank recently offered to cut interest rates to 7 percent for the first 3 months and then raise interest rates to 8 percent for any period beyond that.
Toan said banks are charging more and more on long-term loans to reduce the risk of a liquidity crisis as most of the deposits are only made for 1-3 months.
He said 85 percent of deposits at the bank are short terms, while most loans last 1-5 years.
A colleague from DongA bank said 70 percent of their deposits are also short-term.
Hung said Ban Viet offers 5 percent loans, but only for 3 months.
Interest goes up to 8 percent for six-month loans.
After that, “the rates will be subject to market changes, he said.”
He said businesses can enjoy cheaper loans if they can make a quick return on their investment.
But businesses dismissed the possibility.
Le Tung, board chairman of Saigon Trading Company which runs a convenience store chain in the city, said sales remain sluggish.
Tung said a business would make no profit and even loss if they invest with bank loans.
Once bitten, twice shy
Banks are only willing to lend to businesses with a proven track record, which they admit are few and far between.
The lenders have offloaded their bad debts to the central bank’s Vietnam Asset Management Company, but sales have slowed down.
VAMC opened in July of 2013 as part of the government's plan to tackle an estimated VND140 trillion ($6.6 billion) worth of bad debts that stymied lending and dragged the economy into its most severe slump in at least a decade.
Banks with bad debts of 3 percent or more were required to sell them to the VAMC for special bonds redeemable for loans from the State Bank of Vietnam.
But experts, reflecting on steady rise of bad debts this year, said the measure won't work since no actual money changes hands.
Bad debts during the first 8 months of this year rose from VND44.7 trillion to VND60.9 trillion ($2.1 billion to 2.87 billion), or 6.1 percent of outstanding loans, according to the central bank.
Small and medium enterprises were responsible for 39.3 percent of bad debts by the end of August.
Toan of ACB said the rising fear of overdue loans has left banks wary of potential borrowers.
His bank prohibits employees from providing further funds to borrowers if 3 percent or more of their initial loan remains overdue.
Small businesses have limited access to bank loans--instead, they've returned to the traditional practice of borrowing from relatives.

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