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Commercial banks unpleased with ceiling lending interest rate   2012-05-14 - C. V

Not only having set up the ceiling deposit interest rate, the State Bank has also fixed the ceiling lending interest rate. However, the move has not been applauded by commercial banks.


The business circle, which repeatedly urged the State Bank of Vietnam to apply drastic measures to force commercial banks to pump cheap capital into the national economy, has “reached the summit of its hopes” when the central bank has defined the lending interest rate at 15 percent per annum for four groups of borrowers.

However, while businesses feel joyful, commercial banks feel unpleased about the decision.

Do Ngoc Quynh, a senior executive of the Bank for Investment and Development of Vietnam (BIDV), said on Dau tu newspaper--that no bank likes the ceiling interest rate mechanism.

He said the interest rate can be described as the “prices of risks.” Banks need to charge high interest rates on the loans with high risks, and charge lower interest rates on the loans with lower risks. If the interest rates are not high enough to cover the risks, banks would not make disbursement.

Sharing the same view, other bankers all have affirmed that they really want to push up lending, because credit remains the main source of income of banks. However, this may lead to the breaking of the risk management rules. The bankers said a “war” has broken out inside every bank between the business and the risk management divisions.

Truong Gia Tu, Deputy Risk Management Director of Techcombank, said bank business and risk management divisions can be compared as the accelerator and the break of a car. One would not dare to drive a car which does not have break.

The bank, which drives the car, needs to reach the finish safely. If the traffic is good, the economic conditions are favorable, bank can drive car at higher speed. Meanwhile, in difficult conditions, it needs to go at lower speed and use break.

Disagreeing with the opinion that commercial banks need to accept lower profits to share difficulties with businesses, Simon Morris, Techcombank’s CEO, has affirmed that banks, like other businesses, need to optimize their profit. He said that no one would share the loss with banks, if banks meet difficulties.

The weak risk management system is the biggest reason that makes banks hesitant to push up lending. Meanwhile, the imposition of the ceiling deposit and lending interest rates would make the risks higher, because the fixed interest rates would not be able to truly reflect the actual capital costs.

Quynh has stressed that it’s necessary to set up better risk management mechanism because the Vietnamese risk management system remains weak. BIDV has to give up the intention to open a representative office in Hong Kong, because the host localities require the proofs showing that Vietnam is applying the 25 rules of Basel II code and that the State Bank has the ability of implement the policies on the market.

Commercial banks have spent multi million dollars since 2011 on their risk management works. However, the bad debt has been increasing, which has made experts believe that banks would have to make higher provisioning against risks in the time to come.

Thoi bao Kinh te Vietnam cited a report by HSC Securities Company on May 11 said that the current average dong interest rate is 17.24 percent per annum. The lending interest rates have decreased by 0.7 percent over the last two weeks and 1.4 percent since early April. As such, the interest rates have decreased rapidly.

HSC thinks that the bottom interest rate of the current cycle would be 16-16.5 percent per annum.

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