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Central bank tells banks to boost lending   2008-10-12 - Thanh Nien, Agencies

Central bank tells banks to boost lending
A customer withdraws money at a VPBank branch in Hanoi. VPBank and many other commercial banks have eased interest rates on dong deposits to below 18 percent.  
The State Bank of Vietnam called on banks to step up lending to support economic expansion after lending in the first nine months of the year slowed and economic growth stayed below annual targets.



Gross domestic product grew 6.52 percent year-on-year in the first nine months of 2008, slowing from last year, when the US$71-billion economy rose 8.5 percent.

State Bank of Vietnam (SBV) Governor Nguyen Van Giau urged commercial banks “to develop their business plan, continue to raise deposits and increase credit to the economy at reasonable interest rates,” a central bank statement said.

Banks need to watch the US financial crisis closely to limit its impact on Vietnam’s economy, the statement quoted a directive signed by Giau Thursday as saying.

The directive comes after bank lending slowed in the first nine months of this year. Credit growth in the period was 18.03 percent against 30 percent in the same period last year, an SBV report said.

Bank deposits grew by 10.71 percent between January and September compared to same period in 2007, the report said. But it gave no lending or deposit figures.

Agribank, Vietnam’s top bank by assets, said loans outstanding were up 12.7 percent on October 1 from the end of last year after the central bank curbed loans to tame inflation.

The central bank aims to cap credit growth at 30 percent in 2008 to fight double-digit inflation, after lending surged 54 percent last year.

But the directive issued Thursday said while banks need to control the quality of credit, especially real estate loans, they should expand lending to support exports, farming and critical national projects.

Meanwhile, banks have continued to lower deposit interest rates. Many analysts have forecast an even deeper cut next week.

Short-term deposits, which, during the banking liquidity crisis several months ago, carried interest rates as high as 18 percent, have seen the largest cuts.

Phan Duc Trung, CEO of FPT Capital, said after central banks in the US, EU and China cut interest rates, dong and dollar deposit interest rates in Vietnam would also have to go down.

A CEO of a commercial bank told Thanh Nien that banks also faced difficulty in lending due to businesses’ fear of recession.

“Lending is tough now. Clients are not optimistic about expanding business. They’ll only agree to take bank loans if interest rates are lower than current levels,” the CEO, who wished to remain anonymous, said.

Banks, therefore, have to lower deposit interest rates now or “will hurt themselves in future when loan interest rates go below current deposit rates.”

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