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Banks need capital to meet demand
The strong recovery of the local stock market and wild fluctuations in gold prices and foreign exchange rates have pressured local commercial banks to raise more capital to meet credit demand, according to banking experts.
Many investment channels have showed signs of recovering, with the local stock market continuing an upward trend, with less money flowing to banks, they said.
The VN- Index in June began on an upswing, gaining 3.59 per cent from last Friday’s session to close at 426.43, with gainers outnumbering decliners by 162 to eight and many leading shares hitting their ceiling prices.
Meanwhile, the price of gold also continued increasing and soared to a record level of 21.6 million per tael on June 1.
The Saigon Jewelry Holding Company early this week announced gold prices at VND21.53 million per tael for buying and VND21.65 million per tael for selling, an increase of VND400,000 since last weekend.
Meanwhile the central bank in May said it saw no reason for a devaluation of the dong and predicts that the currency would fall up to 6 per cent against the dollar in 2009 as a whole.
But demand for dollars from importers and gold traders has recently jumped in the country’s unofficial markets, pushing the dollar to 18,250 dong, far above the official rate of 17,780.
Authorities are likely to sanction further weakening the dong as a means of addressing an onshore dollar supply/demand imbalance.
This unstable situation in the foreign exchange market has also created opportunities for people with savings to make profits as they participate in trading activities, analysts said.
Because profits from these investments are often higher than deposit interest rates, more people are investing their savings into businesses.
A representative from Sai Gon Thuong Tin Commercial Joint-Stock Bank (Sacombank) said the industry’s high credit growth proved that the local economy was improving.
However, this could create more difficulties for local banks to attract capital as other investment channels are absorbing sources of money.
Credit demand rises
While commercial banks are facing a cash drain, credit demand has increased.
Local commercial banks have not only been responsible for providing subsidised loans under the Government’s stimulus programmes but also have had to meet the public’s increasing demand for personal loans.
In addition, the recent recovery of the local securities market has encouraged many people to borrow money from banks to invest in the market.
The result is that the number of investors taking loans against their shares have increased two or three times than in previous months.
Ly Xuan Hai, general director of the Asia Commercial Joint-Stock Bank (ACB), said that from January to mid-May the bank advanced loans worth VND800 billion against share certificates for investment in the stock market, up 29 per cent compared with the figure recorded early this year.
To meet the market’s credit demand, many commercial banks, particularly small-sized credit organisations, have increased their deposit interest rates to attract more savings from the public.
The Viet A Commercial Joint Stock Bank (VietA Bank), for example, said the bank’s latest interest rate adjustment was on May 28, with an average increase of 0.1 per cent per year.
The interest rate of a three-month deposit was raised from 7.9 per cent to 8.0 per cent, while the 12-month deposit rate increased from 8.1 per cent to 8.2 per cent.
Since May 28, the HCM City Housing Bank (HDBank) has applied higher rates to all kinds of deposits, including 9.8 per cent for 36-month term, 8.4 per cent for four-month term and 8.6 per cent for six-month term.
In spite of their efforts, many banks have not been able to attract deposits as much as they expected.
A representative of VietA Bank said by late April the bank provided corporations and individuals with loans totalled VND7.3 trillion, up by VND422 billion over March.
Meanwhile, the total capital that the bank attracted in April was VND8 trillion, up only VND280 billion.
The central bank’s figures also showed that credit growth was higher than deposit growth in April.
In May, credit was up 4.86 per cent month-on-month and 11.6 per cent since the end of 2008. Deposits recorded growth figures of only 3.74 and 9.88 per cent.
Hai of the ABC, however, said he believed that there would hardly be an interest rate fever similar to the one that took place last year.
Local banks’ recent increases in deposit interest rates were done to expand their market share and meet credit demand, he said.
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