In order to curb inflation, the central bank has to apply several urgent measures. However, the measures, while helping the central bank hit the mark, have been creating big difficulties for commercial banks.
Since July 30, 2007, the State Bank of Vietnam has three times raised the required compulsory reserve ratio for bank deposits. The ratio for demand deposits and less-than-12-month deposits has been raised from 2% to 5% and then to 10% of total deposits.
Experts say that it is actually necessary to raise the compulsory reserve ratio in the context of the ‘hot credit growth’ in the first six months of the year (15% over the end of 2006). However, they said that the central bank made an unsuitable move when raising the compulsory reserve ratio dramatically by two fold, which is believed will influence the liquidity of the national economy.
According to the Vietnam Industrial and Commercial Bank (Incombank), the higher required compulsory reserve ratio means that the capital cost will be higher, which will force the banks either to lower capital mobilisation interest rates, or raise lending interest rates.
As commercial banks now have to compete with each other fiercely, they will find it hard to demand higher lending interest rates from their traditional clients. If they insist on raising lending interest rates, they will see their market shares narrow or they will have to accept loans with higher risks. In previous years, the demand for capital always increased in the third quarter, and if the scenario repeats this year, banks may have to raise the interest rates on deposits and lending interest rates.
Several commercial banks have asked the central bank to consider re-adjusting the required compulsory ratio. The banks said that the high compulsory ratio had caused big difficulties for their operations, while enterprises said that the decision had weakened their competitiveness, since enterprises still rely on bank loans as their biggest source of working capital.
The State Bank of Vietnam has also announced it will tighten loans for consumer, real estate projects and securities investments.
However, experts have warned that if the central bank tries to keep a rein on loaning to real estate investors, it will freeze the real estate market for longer, which would hinder the synchronous development of key markets in Vietnam.
In fact, loans funding consumer projects remain modest, accounting for 5-20% of total outstanding loans of banks; therefore, there is no need to strictly control lending for consumer projects.
If considering investment portfolio and credit quality, one can see that banks should tighten lending to state-owned enterprises instead of lending for consumer or real estate projects. Statistics show that state-owned enterprises have a high ratio of bad debts: the ratio of debts on state capital in these enterprises is 5 on average, and reach 30-35 in some enterprises.
Source: VNE
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment