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NEWS UPDATES 14 November 2009

Stimulus package: Vietnam banks in funding shortage

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Vietnam’s second stimulus package, via a banking rate subsidy programme, could further exacerbate banks’ funding shortages, reported

“With the first bank rate subsidy programme, the banking system has been facing a fund scarcity. Now the second is coming, it is hard to imagine how the system will cope,” said a Vietinbank official.

The interbank market, where local lenders borrow short-term funds from each other, has heated up with increasing borrowing demands. The lending rate moved up sharply last week. Overnight lending rates were 7.66 percent, per year while one- to six-month lending rates shot up to 9.77-10.08 percent, per year.

“These are the highest levels since the beginning of the year reflecting the fund scarcity in the system due to the implementation of the bank rate subsidy programme,” said the Vietinbank official.

The second bank rate subsidy package has been approved by the government and needs to be ratified by the National Assembly later this month. Accordingly, short-term loans will be supported with 2 percent, per year interest rates till the end of 2010’s first quarter. However, only export companies and companies using huge labour resources will be eligible for the subsidy.

The current middle and long-term loans subsidy started in April will be extended to December 31, 2010 and interest rates will be lowed to 2 per cent, per year instead of 4 percent, per year.

According to a BIDV official, the bank rate subsidy programme distorted the credit market, leaving banks short of money.

“The market balances itself and the lower the lending rate is, the higher the borrowing demand is. Now, for instance, the real market lending rate should be 10 percent, per year but with the bank rate subsidy programme making it cheaper at 8 percent per year, for instance, it will trigger borrowing demand to a higher level than it should be. That is why the banking system is running short of funds,” said the BIDV official.

At the moment, banks are en masse increasing mobilisation interest rates closer to 10.5 percent, per year capped by the State Bank. Attracting funds from the public via issuing deposit certificates is becoming popular. In the latest moves, LienVietBank offered 10.10 percent, per year for eight-month deposit certificates, while Vietinbank offered 9 percent, per year for six-month certificates and 9.5 percent, per year for 12-month certificates.

“It seems that local banks are doing everything they can to offset funding shortages,” said Nguyen Dai Lai, vice head of the State Bank’s Credit Information Centre. Over the first 10 months of 2009, while credit expanded over 30 percent, fund mobilisation only grew by 25 percent.

“With the implementation of the second bank rate subsidy package, the banking system’s funding shortages will be more serious,” said the Vietinbank official.


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