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Lower interest rates hurt medium and small banks

08:13 | 24/7/2012 |  0 Feedback
HCMC Law newspaper interviewed former director of the Banking Development Strategy Department Dr. Le Xuan Nghia on his views about the effect of lower interest rates on local banks and enterprises.

Source: internet

Although lending rates have been lowered, only some enterprises have been allowed to borrow money at the new rate. What do you think of this?

Each bank has its own working methods. State-owned banks lowered all kinds of interest rates for every enterprise. However many commercial joint stock banks only give loans to some certain businesses.

Why is there such difference?

The state-owned banks don't have to worry much about profits when they lower all their interest rates because they have other deposits such as insurance, ODA and big customers that have deposits with low interest rates. On the contrary, the cost of capital for joint stock banks is often higher than their deposit interest rate.

Moreover, their customers are often medium and small-sized businesses. Another reason is that commercial banks have to compete with state-owned banks so they can only lower interest rate for some customers. Some banks have dropped their rates down to 13 and 14% instead of 15% to compete.

What affect will the lower rates have on the banks?

It's too soon to say who has lost and gained. Another three months is needed to see what effect this has had on the financial situation for many businesses.

And what about its effect on enterprises?

Lower lending rates benefit enterprises. With financially sound enterprises, this provides great financial support during difficult times. A 15% of lending rate will reduce losses or provide profits for some companies this year. With badly performing enterprises, we wouldn't be able to save them anyway.

What do you think enterprises should do to recover by using the lower rates?

The foremost problem is a sluggish consumer market, both domestically and in terms of exports, the other problem is the lack of capital to expand business. These two problems are related to each other. Enterprises have a higher chance of recovering by borrowing from banks. However the high ratio of bad debts is making things impossible and could only depend on the government for help.

Do you think the SBV should adjust the rates further?

The currency exchange rate is balanced, the governor of SBV also said that the rate will be kept stable in 2012. Of course company owners want the rate to be lowered so the competition between the banks could be harsh. Joint stock and small banks are in fierce competition, it's difficult for them to mobilise deposit accounts for over a 12 month period with low interest rates.

Many banks may break the announced ceiling deposit interest rates for short-term accounts.

Would this race to increase interest rates be a problem?

It's not a serious problem. In fact, the SBV has given the banks the freedom to set their deposit rate for short and long term accounts. Prolonging the use of administrative tools will hinder the growth of Vietnamese banking system and damage the credibility of the banks.

Dr. Le Xuan Nghia also believed that the government should quickly assist the real estate market since the market is closely related to the credit businesses.
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