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Credit growth slows amid rising bank deposits

Credit growth slows amid rising bank deposits

Sunday, September 30, 2012, 16:00 GMT+7

Total bank deposits have outstripped total credit growth of the local economy, according to the information released by the State Bank of Vietnam (SBV) at a recent cabinet meeting of the government at the Government Office in Hanoi.

As of September 20, 2012, the total outstanding loans of local credit institutions grew about 2.35 percent over the end of 2011, while their total deposits rose 11.23 percent over the same period, according to SBV report at the meeting.

The total money supply (M2) of the banking system was estimated to increase 10.37 percent from the end of 2011.

Meanwhile, the deposit and lending interest rates have declined sharply by 5-8 percent per annum in agreement with the changes in macroeconomic situation and monetary market.

The country’s balance of payments in January-September was estimated to increase about $8 billion, an important condition to increase the national foreign exchange reserves, which have been recorded at $22-23 billion.

Stubbornly slow credit growth

Concerns were stirred up late last month sue to the increasing imbalance in capital inflows and outflows in the local banking sector, the difference in capital mobilizing and lending, according to Nhip Cau Dau Tu newspaper.

Though the central bank has carried out a range of measures in an attempt to stimulate borrowing and credit growth, as of August 2012, capital mobilization rose 11.2 percent, while credit grew merely at 1.4 percent, the lowest rates over the past ten years.

Moreover, around a half of credit institutions posted negative credit growth in the first six months of the year.

Commercial banks have apparently strived for further deposits from the residential sector probably in order to ensure the capital adequacy ratio as well as to meet the potentially expanding demand by the year-end.

However, foot-dragging capital outflows would take toll on the economy as businesses suffer capital shortage, whereas banks could not lend in spite of capital surplus.

In the meantime, lending plays a major part in the making up of commercial banks’ revenues.

With the current trend of increasing mobilization and modest lending, it is very likely to cost lenders much more interest costs in repaying for depositors in the future.

In fact, the big gap between mobilization and funding has driven down first-six-month profit of several banks, which may continue in the time to come.

“Given currently enormous bad debts, such difference could adversely hit the future cash flows,” said Nguyen Xuan Thanh, director of the Fulbright Economics Teaching Program in HCMC.

“However, banking profits will still be recorded yet in the categories of receivables or other assets”, he added.

Many businesses have taken out new loans for loan rollover rather than production resulting in Eximbank’s negative outstanding credit for the first eight months of 2012, Sai Gon Tiep Thi newspaper quoted Truong Van Phuoc, general director of Eximbank, as saying.

Also, another bank admitted modest additional funds in the past three and four months.

The phenomenon would be plausible given weak consumption and soaring inventories which have discouraged enterprises from borrowing any further.

The National Financial Supervisory Committee’s report on Vietnam’s economic prospects 2012 – 2013 has also affirmed the key to the economic stagnancy would be interest rate cuts, which should go down by 4-5 percentage points against that by the end of 2011.

The overheating credit growth over the previous years has now pushed enterprises to take out new loans for repayment of old ones, said Le Dat Chi, head of Finance and Corporate Department under HCMC University of Economics.

A few months ago, Governor of the State Bank of Vietnam reckoned the end of the year interest rate could fall to 8 percent on the year inflation rate of 7 percent.

Even further monetary loosening could be unlikely to boost up the economy on escalating inventories, it could discourage borrowers from seeking additional funding, said Chi.

The national monetary policy will be regulated flexible following the changes in the macroeconomic situation in the near future as required by the government, said SBV. Reasonable credit growth will be in associated with credit quality, suitable money supply, stable foreign exchange rate, interest rates in line with inflation to ensure economic growth and contribute to curbing inflation. SBV will closely monitor changes in the monetary market to take timely and suitable measures to ensure the liquidity of credit institutions, ensure the safety of the banking system and soon handle bad debt problems associated with restructuring of commercial banks.



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