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Black credit defaults attributed to uncertainties in financial system
A lot of cases, where evildoers borrow money from the public and then run away, have occurred on the black credit market. Experts believe that the black credit has existed in reality because of the problems of the official financial system.
A series of insolvency cases occurring in Hanoi have been reported by local newspapers recently. In the districts of Dan Phuong and Phu Xuyen, debtors have reportedly run away with the unpaid debts of 300-400 billion dong, leaving the creditors – the poor farmers in a great distress.
Le Dang Doanh, a well known economist in Vietnam, said that the consecutive default cases recently are just the “tip of the iceberg”. Since the real estate market remains lackluster, the stock market keeps gloomy, while the gold prices fluctuate all the time, people accept to join “hazardous games” which are really risky but promise high profits.
Especially, in the black market, borrowers accept to pay the sky high interest rates of tens of percent, which are really much higher than the interest rates banks pay for deposits.
Doanh has recalled the case of businessman Nguyen Van Muoi Hai which occurred in 1980. At that time, Hai, offering the very attractive interest rates, successfully mobilized huge capital from the public.
People, who had idle money, and even poor farmers who only had the total assets worth several millions of dong, rushed to deposit money at Hai instead of depositing money at banks, because they were promised sky high interest rates – 10,000 dong per day for every one million dong of loans.
“I know the farmers, who gave Hai the sums of money which they saved for their whole lives, and then never can take the money back,” Doanh said.
He went on to say that the current difficult period of the national economy is the golden opportunity for black credit and insolvency to boom.
Meanwhile, Pham Chi Lan, a well known economist, has pointed out that people ignore legal capital mobilization channels because they do not have confidence in the official financial system.
Commercial banks now quote the interest rate at 14 percent per annum, but in fact, they would pay 17-18 percent per annum to many depositors. Meanwhile, bank credit officers regularly put difficulties for borrowers, while borrowers usually have to pay “under table fees” for loans. These, together with a lot of other bank problems all have eroded people’s confidence on the banking system.
Lan said that the black credit market still can exist and operates under the “law of the jungle” because the official market cannot satisfy the demand of people.
“Having no confidence on banks, those people, who need capital, have to borrow money on the black credit market. Meanwhile, those, who have idle money, lend on the black credit market instead of depositing money at banks to obtain higher interest rates,” Lan said.
The expert went on to say that in the first three quarters of the national economy, the staggers of the macro economy, the high inflation, the tightened monetary policies made people and investors puzzled and they do now where to invest. While understanding them well, evildoers try to persuade them to lend money, offering sky high interest rates.
“The banking system which still cannot gain people’s confidence will prompt people to make transactions on the black market,” she said, adding that if the banking system develops well, the black credit market will not be able to develop.
Meanwhile, according to Cao Sy Kiem, former Governor of the State Bank of Vietnam, now Chair of the Small and Medium Enterprises’ Association, the main reason behind the default cases is the difficulties in accessing loans. Though banks promise to provide capital to small and medium enterprises and export companies, in fact, the enterprises still cannot access bank loans.
When banks refuse to provide loans, people and businesses have to take a risk to borrow money on the black market.
Meanwhile, Doanh cited official figures as saying that 65 percent of farmers still cannot access bank loans.
vietnamnet, VnExpress
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