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Interest rate hike cause difficulties for both banks and borrowers
Experts have warned that the increasing lending interest rates will cause big difficulties for both lenders and borrowers in consumer credit.
Borrowers anxious
According to the State Bank of Vietnam, the average deposit interest rate offered by state-owned banks has reached 7.58% for a 12-month term deposit, while joint stock banks have mobilized capital at 7.74%.
The lending interest rates of consumer loans have also been raised accordingly, now hovering around between 15.5-17.5%. Some banks are now even applying the interest rate at 24% for consumer credit without mortgaged assets.
The increasing interest rates have put borrowers in big difficulties. Ng.A. Phuong in Binh Thanh district spent nearly one month to fulfill formalities to borrow VND 50 million. However, Phuong has still been told to wait for some more time.
Pham Huy Duc, Director of Phuoc An Company Ltd., related that when he began fulfilling formalities to borrow money for purchasing houses, the bank interest rate was 13.25% per annum. However, when the bank accepted the loan, the interest rate climbed to 14.3%. The bank, which he contacted, said that as the deposit interest rate has been on the rise, the bank needs to adjust the lending interest rate accordingly.
The borrowers who have received loans also feel uneasy about the loans. Nguyen Quang Hau in district 3, HCM City, said that the credit contract stipulates that the lending interest rates will be adjusted to fit the situation.
Hau borrowed VND 800 million at the end of 2008 with the interest rate of 1.37% per month. In the first six months of the loan, the total sum of principal and interest Hau has to pay is VND 21 million a month. From the seventh month, he has to pay nearly VND 3 million more, as the bank now applies the new lending interest rate of 1.45% per month.
Lenders also suffer
The deposit interest rate increases in the last while have helped increase the mobilized capital volume. According to the HCM City Statistics Office, by the end of February 2009, the total capital mobilized by local banks had reached VND 587.5 trillion, increasing by 20% over the same period of the last year, while the total outstanding loans had reached VND 501 trillion, up by 13% over the same period of the last year, which just increased by 0.7% over the previous month.
Experts, on one hand, said that consumer loans prove to be the good solution to stimulate the demand and help banks maintain profit, on the other hand, said that banks should not bog down in the interest rate war which they have kicked off to attract more capital.
Associate Professor Dr. Tran Hoang Ngan, Dean of the Banking Faculty under the HCM City Economics University, said that in the current circumstances when the national economy declines, consumer credit leans towards funding house and car purchases, or luxury items. The luxury items mostly are the imports, which mean that Vietnam cannot encourage production while it only boosts imports.
General Director of Lien Viet Bank, Nguyen Duc Huong, also said that if banks cannot well manage the consumer loaning, they will suffer.
Most of consumer loans are short term or medium term loans, while the banks’ capital sources come mainly from less than 9-month capital. Therefore, if banks cannot manage the capital use and the loans well, they may face high risks, especially small banks.
Quynh Chi
vietnamnet
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