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A review of monetary policies in H1
Tightened monetary policies influenced the operations of commercial banks and businesses. This was the most prominent aspect of the national economy in the first half of the year.
Exchange rate problem
The director of an oil and gas service related that in June 2008, his company lost VND5bil because of exchange rate fluctuations. The company leases oil rigs under long-term contracts and the leasing fees are set in dollars.
As the service is provided in the territory of Vietnam, the company has to collect leasing fees in VND with the exchange rate stipulated by Vietnamese commercial banks at the time of payment.
However, the company borrows capital in dollars to invest in oil rigs and it has to pay interest on the loans in dollars quarterly, which means that it needs to convert the leasing fees it gets in VND to dollars. It had to spend an additional VND5bil to buy $3mil at exchange rates higher than the officially quoted exchange rate.
The June finance balance sheet of the Saigon Industrial Corporation saw an item of expenditure of VND9bil. On June 24, 2008, commercial banks quoted the exchange rate at VND16,616/US$1, but the corporation had to buy dollars at VND18,400/US$1, or VND1,784/US$1 higher than the quoted exchange rate.
A high-tech zone management board, when buying foreign currencies at banks, also had to pay additional fees of VND1,600/US$1 and 10% of VAT on transaction fees, which meant it had to pay VND1,760/US$1 more than the quoted exchange rate.
It has been asked if Vietnam actually lacks foreign currencies. If the answer is ‘yes’, then how can businesses still buy foreign currencies if they agree to pay higher prices?
Three complaints about interest rate policy
First, banks are trying to limit loaning because they cannot let their credit grow by more than 30% this year over last year. Banks have capital, but they dare not lend money.
Second, businesses complain that their credit limits have been lowered, while they still have high demands for loans for re-investment and business expansion.
Third, businesses even have to re-negotiate lending interest rates on contracts they signed with banks a long time ago and of which 20-30% of the money has been disbursed. In most cases, they have to accept higher interest rates.
“The 21% per annum interest rate proves to be unaffordable for us. And the more risky thing is that the lending interest rate is not stable, which makes us unable to set up our business plan,” said the director of a joint stock company.
Businesses weeping, banks too
The general director of a big bank said that he well understands the problems of businesses, but he also said that banks themselves now are unhappy.
“Businesses want stable interest rates. But the deposit interest rates fluctuate all the time due to the high inflation. How can we keep the lending interest rates stable?” he asked.
Pham Xuan Lap, General Director of state-owned Vietinbank, has called on businesses to check corporate governance in order to cut expenses. He has also called on businesses to reconsider sales methods and try to collect money early and use loans in the most effective ways.
Bankers say that they don’t want to lend at high interest rates, but they have no other choice. Vietinbank, for example, has the average capital mobilisation cost of 19.5% per annum, while it lends at around 21% – a modest margin.
If inflation goes down, interest rates will go down too
Deputy Governor of the State Bank of Vietnam Tran Minh Tuan has promised that commercial banks will provide businesses with enough capital, but according to the new interest rate base. As the capital mobilisation cost is 18% per annum for banks in HCM City, they cannot lend money at low interest rates.
Statistics show that by June 26, banks in HCM City had gained the growth rates of 7% in capital mobilisation and 20.9% in lending.
Experts say that when inflation goes down, interest rates will go down too. As the central bank is continuing its tightened monetary policies, commercial banks will focus on providing working capital to businesses, while limiting providing loans for investments.
VNN
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