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Banks tightening credit, but loaning to stock investors exception   2009-08-24 - VietNamNet/DTCK

Commercial banks, though having been warned to keep strict control over credit quality, are still funding securities investments as the opportunities are really attractive.


“Don’t say you use money for stock investments”


Under the current regulations, the interest rates of consumer loans are set based on negotiations between borrowers and lenders, while no ceiling interest rate is applied for the kind of loan

“In order to get your application for borrowing money accepted, you just need not to say that you will use money for stock investments,” the credit officer told a client.


It seems that commercial banks have been loosening control over consumer loans. Banks say that they cannot know for sure for what purposes clients use loans, but in fact, they have deliberately set easy conditions for borrowers.


The reason is the attractive lending interest rates commercial banks can enjoy (Under the current regulations, the interest rates of consumer loans are set based on negotiations between borrowers and lenders, while no ceiling interest rate is applied for the kind of loan).


The interest rates applied for consumer loans are now between 12 and 16.5 percent per annum, much higher than the average lending interest rate of 10 percent for normal loans. The lending interest rates for some consumer loans may reach 24-28 and 33 percent per annum.


P., a finance company, has revealed that every day, the company collects 4,500-5,000 debts, and considering that each of the debts is worth 300,000-500,000 dong, the company gets 1.3-2.5 billion dong per day. The lending interest rate here is 28 percent per annum.


A female client once borrowed money from the company when she was a member of a company at the interest rate of 1.18 percent per month, or 14.16 percent per annum. However, after she quit her job in early 2009, she had to bear the interest rate of 33 percent per annum.


Consumer loan is clearly a profitable land with the ceiling interest rate scheme removed. That explains why controlling the purposes of the loans is not important.


“Big opportunities are available and we think we should expand credit,” said the personal banking director of a bank.


32 trillion dong waiting to flow to stocks


By June 30, 2009, the outstanding loans to fund securities investments had reached 8,830 billion dong, an increase of 28.31 percent over the end of 2008. Meanwhile, the outstanding loans to the real estate sector had reached 186,373 billion dong, an increase of 10.48 percent over the end of 2008. The outstanding loans to securities and real estate always account for 12.6 percent of banks’ total outstanding loans.


According to Au Viet Securities Company, by the end of June, the outstanding loans for securities accounted for 5.4 percent of banks’ chartered capital. As the State Bank of Vietnam has set the limit of securities loans at 20 percent of banks’ chartered capital, banks still can pour 32 trillion dong more into securities.


Analysts believe that securities loans will keep on rising to the highest possible level for two reasons.


First, the State Bank of Vietnam will keep the basic interest rate unchanged at 7 percent, which means that the ceiling lending interest rate is kept at 10.5 percent. Meanwhile, banks have to raise deposit interest rates to successfully mobilise capital, which means a narrower interest rate margin for banks. Therefore, it is likely banks will boost consumer loans which do not bear any limits in lending interest rates.


Second, funding securities investments remain a relatively safe kind of loaning since the VNIndex is forecast to keep increasing. Meanwhile, some sources say there are signs showing more foreign capital flowing into the market.

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