When the Government gave the green light for the central bank to revise Circular 13, banks and other financial experts saw it leading to more credit growth in the banking system and a cut in interest rates. The Prime Minister’s recent instruction, however, to curb inflation has raised doubts that interest rates will drop.
Loosening then tightening
The amendments to Circular 13 have given banks access to funds to pump money back into the economy. The amended circular says for lending banks can use above 3-month borrowings from other credit institutions to lend to the public, apart from 20% of funds raised in the interbank market.
Therefore, in the first week that the amendment circular was applied from Oct.1, revenue on the inter-bank market strongly increased. According to the report of the State Bank of Vietnam, there was about VND171.27 trillion and US$3.5 billion flowing between banks on this market last week, generating VND28.54 trillion and US$586 million a day - nearly twice the average revenue in previous weeks.
Le Tham Duong, head of Business Faculty of HCMC Banking University, said it proved that the capital flow had been cleared, solving the biggest problem of capital for the economy.
“The loosening will have its negative side with small banks’ increased reliance on capital in the inter-bank market rather than mobilizing funds from public. However, every policy has its negative side and we will have to wait and see how bad it is. But if the capital flow can not run smoothly, banks will certainly dodge the law to achieve their purpose,” he added.
When the Prime Minister on Monday gave an instruction asking relevant ministries to carry out measures to curb this year inflation’s to a targeted 8% it changed the situation around. The instruction also asked the central bank to help banks to quickly withdraw money from circulation to reduce the pressure of rising prices, especially in remaining months of the year when many projects are carried out at high speed. In addition, other ministries have been asked to strengthen measures controlling prices of essential goods.
It is easy to see that the Government is focusing on keeping the inflation stable, but it looks set to affect the growth that the amendment brought about.
Michel Tosto, associate director of Viet Capital Securities Co., said in a note sent to clients that no concrete measures have been put forward yet - the central bank and the banks are still studying the idea and how to best implement the instruction.
“It's too early to say that the policy has changed from growth to inflation control, but the fact that GDP growth target has been reached for this year looks like inflation control is the definite second item on the to-do list. We could expect perhaps to see measures of the likes of interest rate increases, higher reserve requirements or forcing banks to buy bonds,” he added.
Interest rate still a thorny problem
Le Tham Duong said at this time banks can earn profits from two sources - service fees and lending rates. However, with gold exchanges shut down, service fees account for a small part of banks’ operations so they must focus on interest sums.
For numerous other reasons besides profit, banks can not decrease lending rates. These include increasing forex rate, high Government bonds’ rates, as well as high risks coming from enterprises with growing inventory reports, he added.
The central bank reported that banks have announced to cut their lending rate to 13%-14.5% for enterprises and 11.5%-13% for agriculture sector, exporters, and small and medium enterprises. However, only close clients with good credit history and effective businesses can access bank loans at those levels. Meanwhile, some small banks are quietly increasing lending rates.
Vo Thi Thu Thuy, who owns a family business, said that she was so surprised when Vietnam Asia Commercial Bank suddenly informed of an increase in its lending rate from 1.25% to 1.38% per month, or 16.56% a year from 15%. The bank had immediately revised the lending rate after three months as permitted in the contract, while the Government is asking banks to reduce rates for manufacturing, she said. And this might not be an isolated case.
With the government shifting its gaze to inflation, interest rates will continue being a problem for both banks and policy makers. And if the authorities just encourage banks to decrease the rates the lower rates won’t be stable.
No comments:
Post a Comment