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Capital injection needed to cut loan interest rates

Update: October, 07/2014 - 08:56
Customers do transactions at a commercial bank. The National Financial Supervisory Commission (NFSC) proposes that the State Bank of Vietnam needs to inject priviledged capital into the banking system to help credit institutions cut lending costs without causing a systematic imbalance in interest rates. — Photo giaothongvantai
HA NOI  (VNS) — The State Bank of Viet Nam needs to inject privileged capital into the banking system to help credit institutions cut lending costs without causing a systematic imbalance in interest rates.

The National Financial Supervisory Commission (NFSC) made this proposal in its September economic report, which infonet.vn cited.

SBV figures in September showed that lending interest for general production and business remained stable at nine to 10 per cent for short-term loans and 10.5 to 12 per cent for medium- to long-term loans. Meanwhile, deposit interest rates fell by 0.1 to 0.3 percentage points to five to six per cent for short-term loans, six to 7.2 per cent for loans of less than 12 months and 7.3 to 7.8 per cent for longer-term loans.

The NFSC backed up its comments with reports from 15 credit institutions and said the average profit margin between deposit and lending interest rates in the first half of this year decreased by 50 per cent year-on-year.

"The growing imbalance of interest erodes the financial capacity of credit institutions and the risk provisioning toward bad debts as well," the report said.

The commission also suggested the volume of low-interest capital that the central bank should inject.

To date, the banking system handled more than VND249 trillion (US$11.6 billion) in non-performing loans (NPLs), compared with VND464 trillion ($21.7 billion) in bad debt in September 2011. After three years, an estimated 53.6 per cent of NPLs were resolved.

The Viet Nam Asset Management Company (VAMC) is expected to purchase VND70 trillion ($3.2 billion) of NPLs by the end of this year, plus VND78 trillion ($3.7 billion) in provisional funds from commercial banks and credit institutions.

SBV Governor Nguyen Van Binh told the National Assembly Standing Committee meeting last week that the central bank would take drastic measures to handle bad debts.

However, in its latest report, the NFSC said the VMAC was in need of a State-sourced financial stream to become more competent in purchasing bad debts. Otherwise, the VMAC will need more time to lengthen tenures of special notes to help credit institutions accumulate long-term capital sources. — VNS

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