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Tight credit causes liquidity issues for banks   2008-04-08 - VNS

HA NOI — The Viet Nam Banking Association late last week proposed that the State Bank of Viet Nam strictly punish any commercial banks that charge excessive interest rates, association representative Truong Dinh Song told Viet Nam News.

 

A client makes a transaction at Vietcombank in the capital city of Ha Noi. Under a proposal by the banking association, commercial banks charging excessive interest rates must be punished. — VNS Photo Viet Thanh

HA NOI — The Viet Nam Banking Association late last week proposed that the State Bank of Viet Nam strictly punish any commercial banks that charge excessive interest rates, association representative Truong Dinh Song told Viet Nam News.

Some banks believed, however, that the central bank would refrain from imposing any administrative measures following the Prime Minister’s recent order against further interventions in the market.

With the Government opting for policies to cool down growth in order to reduce inflationary pressures, the State Bank has recently pursued tight credit policies.

The leading State owned commercial banks are now offering loans in Viet Nam dong at high interest rates of 14.6-16.2 per cent per year. Rates at private commercial banks are ranging even higher, at 18.42-21.85 per cent.

These high lending interest rates, some analysts warn, may have the effect not of cooling down growth and inflation, but of driving up production costs, costs which would be passed on to consumers in the form of higher prices for goods and services.

Tight credit policies also mean banks need to hasten investment in other services to attain profit targets, said Techcombank general director Nguyen Duc Vinh.

These policies have also had unanticipated impacts on the interbank lending market. Overnight interbank rates are currently at 12-17 per cent, and up to 15 per cent in HCM City.

With interbank rates high, the ability of banks to command capital liquidity has become more limited.

Banks were also falling short in their ability to meet demand for the US dollar, pushing the negotiated interbank exchange rate on occasions of high demand up to VND16,400 against a listed rate of only VND15,960.

The mounting demand for US dollars was caused by strong payment demand for imports, overseas remittances and offshore loans, director of the State Bank’s Monetary Policy Nguyen Ngoc Bao, told Viet Nam News.

"Borrowing from offshore is also becoming tougher because they are imposing stricter conditions," Bao said.


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