Increasing pressure on commercial banks

VCN- The decision of the State Bank of Vietnam in reducing the management interest rate and short-term lending interest rate in VND for some sectors will have a positive impact on economic growth and business development.\

However, this decision may cause the banking system to experience enormous pressures. Therefore, in the interview with the press, the finance-banking expert, Dr. Can Van Luc made many recommendations to facilitate the banking system.

What do you think about the impact of the adjustment of many types of interest rates of the State Bank of Vietnam?

The reduction of 0.5% in lending interest rates in VND for some priority sectors is a reasonable solution, especially when the State Bank of Vietnam has a basis for reducing interest rates such as low inflation expectations. It is normal for the State Bank of Vietnam to have the policy to adjust the ceiling interest rate for deposit mobilization before adjusting interest rates. However, the State Bank of Vietnam does not want to adjust the deposit rate for fear that cash flow will move to more profitable financial channels such as gold and securities, causing difficulties in mobilizing capital in the context of poor capital mobilization in the first 6 months of 2017.

In terms of impact, it is clear that enterprises have the largest benefit, but just for credits signed from 10th July 2017. Moreover, the lending interest rates are only reduced for short-term loans in 5 priority areas, while the outstanding loans of these 5 sectors currently account for only 47-49% of total outstanding loans.

In your opinion, the reduction in interest rates to 0.25% per year and a decrease of the interest rate of 0.5% per year for short-term loans in some areas are reasonable or not?

In my opinion, this reduction is appropriate. Because if it declines much more drastically, only enterprises are satisfied, but banks will not dare to lend in priority fields. Because the difference between the input and output ò interest rate after deducting all costs, the risk provision is about 2%, while the rate in many other countries in the region is many times higher, at 4%. Therefore, banks will not be able to withstand, especially in the context of bad debts.

Moreover, if banks lower interest rates, credit risks are growing too fast. The central bank has set a credit target of about 18%, the State Bank of Vietnam can not jump above 20% because experts from the World Bank have issued warnings about hot credit growth in Vietnam. While credit for the five priority areas is increasing by 12-14%, a 0.5% decrease per year in the five priority areas will not cause rapid growth.

Why is the State Bank of Vietnam adjusting interest rates and lending rates without letting commercial banks lower interest rates by themselves?

I have advised the State Bank of Vietnam to remove all ceiling interest rates and credit growth targets. However, in the current context, the financial -banking market is more fluctuating, risky and complex so we should use administrative orders from the regulatory authorities. If the State Bank of Vietnam does not issue an administrative order, commercial banks may find it hard to reduce interest rates. It is clear that the competitive environment in the banking industry has changed a lot and commercial banks also prioritize interest rates.

It is obvious that meeting the State Bank of Vietnam’s “call” for lowering interest rates will have an impact on the performance of commercial banks, so how should this issue be addressed?

Credit has increased very fast since the beginning of the year, so the mobilization of capital may not be as expected, so in order to support the banking system to reduce interest rates at the request of the State Bank of Vietnam, I think the banking system should accelerate. The resolution on handling bad debts has been approved by the National Assembly, so we should immediately promulgate regulations and implement circulars to fully deal with bad debts because it is difficult to reduce interest rates in the context of bad debts. This resolution only has a five-year period, so the banking industry has to be more aggressive.

In addition, in my opinion, the State Bank of Vietnam should consider amending Circular 06/2016 / TT-NHNN amending and supplementing some articles of Circular 36/2014 / TT-NHNN on limits to ensure safety in operations of credit institutions and branches of foreign banks. This circular allows banks to use the short-term capital for long-term loans in 2017 at 50% and 2018 at 40%. This shows that the banking system is meeting the demand for capital at the same time, and satisfying the demand for credit by 18% this year, in line with Circular 06. Therefore, it is necessary to increase interest rates to mobilize medium to long-term capital. Therefore, if the State Bank of Vietnam adjusts the time of Circular 06, it will help reduce the pressure on the banking system, thereby reducing the mobilization of interest rates (if any).