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Fewer deposits, banks stop funding long-term projects
The credit growth rate saw a decrease in April after it soared in the first three months of the year. Banks have all stopped funding real estate and securities investment deals.
Statistics show that by the end of April 2008, the total outstanding loans of credit institutions had increased by 14.73% compared to the end of 2007. This proves to be a very high credit growth rate if noting that the credit growth rate must not be higher than 30% in all of 2008. However, the outstanding loans increase slowed down in April, witnessing only a 1.66% increase over March. HCM City, the biggest economic hub, saw the modest increase of 0.15%.
The slower credit growth rate was anticipated as the State Bank of Vietnam has used its tools (high required compulsory reserve ratio and compulsory bonds) to ‘detain’ capital.
Moreover, commercial banks have been reducing outstanding loans due to the limited usable capital they have as a result of the interest rate policy.
The mobilised capital of banks has been growing very slowly in the last month, just equal to 1/3 of the outstanding loans growth rate.
By the end of March 2008, the capital mobilised by banks in Hanoi, the locality with the biggest capital mobilisation market share, had not increased compared to the end of 2007. Meanwhile, outstanding loans in the same period increased by 16.6% –something never seen before.
The low increases of deposits have caused big difficulties for banks in ensuring liquidity. That explains why joint stock banks, which had very high credit growth rates in 2007, had slower credit growth rates in the last time. While Hanoi’s banks had the average credit growth rate of 16.6%, the figure was 12.9% only for joint stock banks.
The noteworthy thing is that while domestic banks saw credit growth slowing down, foreign bank branches and finance companies under economic groups saw considerably high growth rates (over 35% over the end of 2007). It is because the institutions do not face difficulties in liquidity like domestic banks, while they offer more attractive lending interest rates.
Capital not going to real estate and securities
Commercial banks have stopped funding real estate investments, and many of them are trying to withdraw capital from the sector due to the low liquidity of the real estate market.
With limited and short-term capital, banks are now turning down long-term investment projects, while they are focusing on short-term projects, which allow high capital turnover. Therefore, funding import-export deals and normal goods purchases are the most popular services now. Those banks, which have profuse capital, are pushing up consumer credit as the loans prove to be safe as borrowers have stable incomes.
It is expected that credit will continuously see slow growth in the second and third quarters of the year if the central bank does not loosen the monetary policy.
VNN
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