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Banks turning off consumer credit valve
Banks still cannot mobilise capital even though the ceiling interest rate scheme was removed. As a result, they have to limit consumer credit.
The deposit interest rates offered by banks are now very high, between 13.5% for short-term and 15.6% for over-12-month term deposits. However, the high interest rates cannot help banks much in mobilising capital.
One week after the State Bank of Vietnam removed the ceiling interest rate scheme, Viet A Bank reportedly had mobilised VND200bil (VND30-40bil a day) and Dong A Bank VND20bil a day. State owned banks had a little higher mobilised volume as people always think that state owned banks are the safest investment channel.
As a result, banks continue to limit lending, though experts predicted that when the ceiling interest rate scheme was removed, banks’ capital would become more profuse, allowing them to push up lending.
Tran Phuong Binh, General Director of Dong A Bank, said that the bank is now focusing on funding production and business projects, and the bank’s capital is now not even profuse enough to meet all demands in this field. Therefore, the bank has stopped providing consumer credit.
Consumer loaning, a short-term banking product, proves to bring high profit to banks. That explains why most banks rushed to push up consumer credit in 2007. Some banks, in order to attract clients, even offered loans with no mortgaged asset requirements. In order to be eligible for loans, borrowers just needed to prove that they had the stable income of VND3mil a month. Meanwhile, they could borrow big sums of money of up to VND200-300mil with the interest rates of 0.85-0.9% per month.
In general, consumer loans always have interest rates 2-4% higher than other kinds of loans, which also means higher profit for banks.
However, as capital is limited, no bank is interested in providing consumer credit at this moment.
By the end of April 2008, Sacombank’s total mobilised capital had reached VND58tril, an increase of 20% over the beginning of the year, while it had loaned VND40tril, an increase of 17%.
Meanwhile, ACB had reportedly mobilised VND62,000bil and only lent VND40tril.
Since the beginning of the year, no bank has launched any new consumer credit product onto the market, while banks had new products every month in previous years.
ABBank is one of few banks still providing consumer credit. However, it has lowered loan limits and loan terms. Clients are able to borrow up to 70% of the value of the assets they want to buy (cars, houses by installment) with the mortgaged assets being the assets they are going to buy. If clients do not have mortgaged assets, banks can lend up to VND20mil (10 times more than the minimum monthly income of borrowers). By the end of April 2008, ABBank had mobilised VND7,300bil in capital.
In fact, while banks are trying to turn off the consumer credit valve, clients also dare not knock on banks’ doors to ask for loans due to the overly high lending interest rates.
Experts say that this is also one of the reasons that the real estate market is frozen. In 2007, clients needed to have 20-30% of houses’ value to be able to buy houses under the installment plan with the support of banks (the interest rate was 11.5%). Meanwhile, they now have to pay 22-23% interest rates, and have to have at least 30% of houses’ value.
VNN
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