The State Bank of Viet Nam recently issued decisions aimed at lowering both deposit and lending interest rates offered by commercial banks and helping businesses access credit. Banking industry expert Nguyen Tri Hieu spoke about the measures.
|Nguyen Tri Hieu
The State Bank of Viet Nam lowered the cap on deposit interest rates that can be offered by commerical banks from 11 per cent to 9 per cent. What do you think about the move?
This is a good news but took financial industry insiders by surprise. Previously, the State Bank had committed to lower the rate to 9 per cent at the end of the year. Anyway, it's a good sign as the lending interest rate will also surely go down in the wake of the deposit rate cut.
But we still need more time to see whether commercial banks will cut the lending rate as much as the deposit rate. Commercial banks often apply different lending interest rates for different customers. For example, the lowest lending rate of 12 per cent can be given only to solvent customers whose projects are feasible Customers with no guarantee or with intransparent information on business performance can receive higher rates.
More significantly, banks are very cautious in credit risk management so it is not sure that they are ready to unfreeze capital for businesses.
Does that mean that interest rate cuts alone are not enough?
The interest rate cut is necessary but not sufficient. Currently, it is more important to deal with bad debts as the ratio at some banks has reached up to 10 per cent, a very high level. With such a high bad debt ratio, banks will be certainly cautious about lending.
We must first complete the restructuring of the banking system and clean the balance sheets through debt purchases. After that, businesses can be access to low rate loans since banks will be more secure about lending. The State Bank has already proposed measures to deal with the restructuring of the banking system and bad debts, but no specific action has been taken. Authorities should speed up the process.
The State Bank has proposed establishing a debt trading company. Some suggest that the method of paying for it could be a Government bond issue. Is that a good idea?
The Government can issue bonds to buy bad debt from banks instead of using only cash. The bonds are liquid and have no risk so that whenever banks need money they can sell them on the secondary market. However, the Government needs to pay a part of debts in cash to attract banks to take part in the plan. Banks will not be willing to take part if only receiving bonds. Besides, payment in cash would have an immediate effect on bank liquidity and allow them to more quickly inject capital into businesses.
Is it a good idea to capitalise businesses with current high inventories?
Currently, many businesses have high inventories but are seriously short of capital. As credit is not a solution, other measures should also be taken to help producers lower their inventories. The Government, for example, could implement infrastructure investment projects to help cement and steel producers lower their inventories. Growth can be gained only when capital circulation runs smoothly and cannot be based only on looser monetary policy. — VNS