State Bank of Vietnam Governor Nguyen Van Binh assured that inflation this year is lower than last year, although there are many factors that inflation is likely to rise again.
He made this comment at a conference on implementing the bank's monetary measures to promote and support economic- social development co organized by the HCMC local Party Committee, People's Committee of Ho Chi Minh City and the SBV in HCM City on Apr 5.
The current levels of bad debts are hindering businesses from accessing bank loans. Consequently, the 12 percent credit growth target is still out of reach, the Governor said.
However, GDP is higher this year than in 2012, if inflation below 7 pct, the interest rate may be reduced to 7 pct per year and interest rates will stay at around 10pct, he stressed.
Exchanging in the meeting, To Duy Lam Director of the State Bank of Vietnam, HCM branch said the current 7.5 percent deposit interest rates will give commercial banks a good chance to rapidly reduce lending rates.
Not a few commercial banks are willing to reduce interest rates on loans down to 9 or 10 percent, despite low credit growth posing a huge challenge to the national economy, he added.
Commercial banks have attributed the failure of businesses to meet lending conditions as a pretext for not helping them access capital, a situation that has led to an environment of near-nil credit growth.
Conversely, Vietnam’s economy primarily depends on credit capital to maintain its growth. Therefore, a financial support package is needed to assist private businesses, farmers and household producers who are facing difficulties, Lam said.
Lam said that bad debts in the city is about VND 51 trillion, accounting for 5.98 pct of total loans. In particular, the creditors group 5 (or bad debt with the possibility of losing capital) accounted for 62.8 pct of total loans.
SBV Governor Binh agreed that factors such as input costs, interest rates, value added tax (VAT) and utility expenses have all impacted on production and growth.
Businesses should take into account these elements to maintain reasonable margins on their products while still meeting market requirements, he said.
Representative of the National Financial Supervision Committee (NFSC) cited slow credit growth in the first quarter as another stumbling block.
In the past three months, liquidity grew at a modest rate with interest rates on loans falling in tandem with inflation rates.
Interbank interest rates fell slightly compared to the previous quarter, along with several key interest rates, like the discount rate dropping to 6 percent and the Vietnam dong deposit rate to 7.5 percent.
The flow of capital into the production sector has remained weak for whatever it’s worth. By March 21, credit growth was just 0.03 percent while the amount of mobilized capital rose 3.86 percent compared to the late December level.
Government bonds are still considered to be an attractive investment channel for credit organizations because of low interest rates and small risks, according to Binh.
Duong Ngoc Minh, Chairman of Hung Vuong Seafood Company also expressed that if "credit policy” applied differently for each industry, thousands of companies would still be affected.
The influx of foreign goods at competitive prices is a challenge for domestic businesses when they are struggling to cope with the low purchasing power in the context of international economic integration, he complained.
If businesses could use available funding more effectively, they wouldn’t have to rely so heavily on bank loans, Minh supposed.
Tran Dinh Quyen, Director of Tin Thanh Electric and Gas Co. insisted on the State Bank of Vietnam to perform its role as a central bank by regulating the flow of capital and providing enough credit for domestic businesses to grow steadily in the long run.
Quyen said the SBV should lend to commercial banks based on its regulated interest rates which hover between 3-5 percent, making it easier for domestic businesses to pay interest rates on commercial loans even at 10 percent if necessary.
Lowering lending interest rates is the best solution to help businesses save their bacon in the current situation, Quyen stressed.
However, Governor Nguyen Van Binh argued that it is no easy task for the central bank to let commercial banks lower their interest rates on loans when it requires coordinated efforts to curb inflation and ensure the stable growth of the national economy.
The bottom line is the commercial banks need restructuring in the first place before pump priming, Binh said.