Access to bank loans seen easier for SMEs

HCMC – The biggest concern raised by almost all enterprises at a seminar on capital for small and medium enterprises (SME) last week is difficult access to loans at commercial banks but the situation is expected to improve in the near future.

A business executive said at the seminar that commercial banks should keep their promises. He had joined a lot of similar seminars where banks promised to support SMEs, but after that he got disappointed when no bank approved his borrowing application, he said.

Nguyen Xuan Lam, director of L.V. Company, which produces auto parts, said his SME falls under the category of having priority access to bank loans in line with Government policy as his enterprise exports all output and operates in the hi-tech industry. However, no bank has lent to his business, causing its loss of contracts, he noted.

“In the past big foreign customers expressed interest in placing orders with us but we could not secure them because our facilities do not meet their requirements,” Lam said. His enterprise is borrowing capital from ACB, he said, and it needs long-term capital to build a factory.

The two are among the many businesses that have found it impossible to take out bank loans due to high interest rates and hindrances along the way.

Do Lam Dien, deputy head of corporate clients at Maritime Bank, said there existed many obstacles to SMEs’ access to bank loans, such as lack of mortgages, banks’ unwillingness to lend to SMEs, problematic tax payment reports, unsound business plans, and high lending rates.

However, the situation is seen changing for the better in the coming time. Commercial banks, seeking to boost lending, have begun to see SMEs as a potential market, and mapped out plans to tap those corporate customers.

Banks, including foreign ones, have set up a department in charge of SMEs, and most of them said SMEs are their potential clients.

Many programs targeting this segment have come out. For example, An Binh Bank has combined with IFC to support SMEs, and HDBank has earmarked VND2 trillion for financing enterprises in the coffee sector.

Nguyen Dinh Tung, deputy general director of Maritime Bank, said the bank had gauged demand of local SMEs over the past two years to work out a qualitative model to assess corporate clients, instead of the quantitative model that used to be applied.

“We will learn about SMEs as clients by accessing and interviewing them,” Tung said at the seminar.

According to the HCMC Institute for Development Studies, Vietnam now has 500,000 enterprises of which SMEs account for 97%. SMEs are responsible for about 30% of GDP, 30% of industrial output value, nearly 80% of total retail sales, and 64% of total goods transport volume every year.

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Regulation Key To Sustainable Development

Before Dcree 101 took effect on december 20, 2009, State-run commercial banks such as VCB, Incombank and BIDV have resolved to turn into regional or even global finance-banking giants since 2006.

Vietnam must hammer out specific regulations on the establishment and operation of conglomerates in finance and banking to ensure these sectors achieve sustainable development

Although the State Bank Law and the Credit Institution Law have been revised twice, they have yet to mention finance-banking groups. Most sub-law documents have not dealt with these institutions, either. The only exception is Decree 101/2009/ND-CP, dated November 5, 2009, on the “pilot establishment, organization, operation and management of State-owned groups.” Article 3, Item 11 of this decree lists “finance, banking and insurance” among sectors where such pilot establishment takes place.

However, in reality, before Decree 101 took effect on December 20, 2009, commercial banks, especially State-run ones such as VCB, Incombank and BIDV, have resolved to turn into regional or even global finance-banking giants since 2006. If the global financial crisis had not erupted, some local finance-banking groups would be in operation now, at least on a trial basis.

As part of their efforts to realize this vision, some State-run commercial banks have ventured into non-core sectors and given birth to insurance, securities, asset management, realty and construction firms, as well as affiliates in such industries as health care or sports. This approach is somewhat questionable as the main pillars of a finance-banking group are finance, insurance, securities and investment.

Article 32 of the Credit Institution Law holds that credit institutions are allowed to set up, with their own equity, legal entities which have independent accounting records and operate in finance, banking, insurance, asset management and so on. In other words, it is through the pillars of banking, finance, securities and investment that commercial banks use their own capital to set up subsidiaries.

Several commercial joint-stock banks have transformed themselves into groups such as ACB Group or Sacombank Group. State-run commercial banks are capable of doing so, too, but must await official recognition by the Government first. For a start, these State-run financial intermediaries may want to capitalize on the provisions of Decree 101.

The lack of specific regulations on finance-banking groups may hamper the sustainable development of banks once these financial intermediaries turn into groups. In particular, restrictions on the extent to which banks can enter non-core fields of endeavor are vital for sheltering these credit institutions from the problems currently gripping Vinashin.

Currently, risk-taking behavior is widespread among commercial banks. Meanwhile, laws and sub-law documents have yet to offer provisions on the establishment, organization, operation and management of finance-banking groups, private or otherwise.

It is time for the State Bank of Vietnam to take the initiative to fill this gap and, in so doing, foster sustainable development in Vietnam’s finance-banking sector in the post-crisis period. Only then can Vietnam brace itself for the proliferation of finance-banking groups in the future. It is also important to avoid blanket bans on multi-sector and giant entities such as conglomerates, which, like gold trading floors and the likes, are rather difficult to manage.

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Vietnam to relax bank lending rules to boost loans

Vietnam’s central bank said it would let commercial banks lend money from a wider array of sources as of Oct. 1 to assuage concerns that new regulations would dampen lending and possibly hurt the economy.

However, a senior government adviser said the measures did not go far enough.

Bankers had voiced concern about the original rules, arguing they would hinder their ability to boost credit and lower interest rates. In response, and under pressure from the government, the central bank issued amendments late on Monday.

These allow banks to lend up to 25 percent of non-term deposits raised from economic institutions instead of keeping them as reserves. Banks can also lend money they have borrowed from the interbank market for terms of three months or longer.

A central feature of the new rules – raising banks’ capital adequacy ratio to 9 percent from 8 percent – remained unchanged.

The benchmark Vietnam Index gained 1.1 percent on the news, but share traders remained wary. Many analysts had flagged the original set of rules as a potential damper on the market and economy, and had hoped for bigger changes.

“The market is unlikely to see a big rally because traders are still cautious and they will look at how commercial banks react to the new circular in the near term,” said Doan Tran Phuong Phi, a broker at Ho Chi Minh City Securities.

Le Xuan Nghia, deputy director of the National Financial Supervisory Commission, said the amendments would not really help banks expand credit or cut interest rates. “The changes are not large enough to boost lending,” he said.

Central bank Governor Nguyen Van Giau has defended the original rules, saying they would make the banking sector safer. He also warned even stricter rules would take effect from January because of amendments to the law on credit institutions.

Earlier this year the central bank asked banks to restrict their interbank borrowing to less than 20 percent of deposits.

Dong lending rates range from 13 percent to 15.5 percent, although the government wants them cut to 12 percent. Banks promised in May to get nearer that level by the end of September.

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Central bank holds steady on prime rate

The prime rate would be kept unchanged at 8 percent for the 11th
consecutive month as part of the ongoing effort to help commercial banks
lower lending interest rates, the State Bank of Vietnam said on
Sept. 27.

The refinancing and overnight rates for
electronic payments on the interbank market would also remain at 8
percent and the discount rate at 6 percent, the bank said.

Since the central bank gave the go-ahead for a negotiable interest
rate mechanism in March, the prime rate had not had direct impact on the
market lending interest rate that it used to, analysts said.

However, the benchmark interest rate was seen as a way of signalling
the monetary policy direction of the central bank at any given period.

The Government has ordered commercial banks to cut
lending rates to 12 percent and deposit rates to 10 percent in order to
help enterprises access credit.

Prevailing loan rates now range between 12-15 percent.

Many banks expected Circular No13's review to result in important
changes that would loosen credit requirements and help banks have more
capital on hand to make money and reduce interest rates./.

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Vietnam to relax bank lending rules to boost loans

Photo: Tuoi Tre

HANOI - Vietnam's central bank said it would let commercial banks lend money from a wider array of sources as of Oct. 1 to assuage concerns that new regulations would dampen lending and possibly hurt the economy.

However, a senior government adviser said the measures did not go far enough.

Bankers had voiced concern about the original rules, arguing they would hinder their ability to boost credit and lower interest rates. In response, and under pressure from the government, the central bank issued amendments late on Monday.

These allow banks to lend up to 25 percent of non-term deposits raised from economic institutions instead of keeping them as reserves. Banks can also lend money they have borrowed from the interbank market for terms of three months or longer.

A central feature of the new rules -- raising banks' capital adequacy ratio to 9 percent from 8 percent -- remained unchanged.

The benchmark Vietnam Index gained 1.1 percent on the news, but share traders remained wary. Many analysts had flagged the original set of rules as a potential damper on the market and economy, and had hoped for bigger changes.

"The market is unlikely to see a big rally because traders are still cautious and they will look at how commercial banks react to the new circular in the near term," said Doan Tran Phuong Phi, a broker at Ho Chi Minh City Securities.

Le Xuan Nghia, deputy director of the National Financial Supervisory Commission, said the amendments would not really help banks expand credit or cut interest rates. "The changes are not large enough to boost lending," he said.

Central bank Governor Nguyen Van Giau has defended the original rules, saying they would make the banking sector safer. He also warned even stricter rules would take effect from January because of amendments to the law on credit institutions.

Earlier this year the central bank asked banks to restrict their interbank borrowing to less than 20 percent of deposits.

Dong lending rates range from 13 percent to 15.5 percent, although the government wants them cut to 12 percent. Banks promised in May to get nearer that level by the end of September.

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Small banks have trouble with recapitalization

An unidentified bank employee unstraps a stack of Vietnamese banknotes. Several small commercial banks find it hard to meet the chartered capital requirement of at least VND3 trillion by the year-end as their State-owned shareholders may not inject more capital into them as earlier planned - Photo: Le Toan

HCMC – Several small-scale commercial banks are now facing a huge test as how to increase their chartered capital to at least VND3 trillion by the end of this year since State-owned shareholders will unlikely pump more capital into these banks.

Many small banks have relied on State-owned shareholders, and they have built their recapitalization plans on pledges by these shareholders to inject more funds to maintain their stakes. However, a recent decision by the Government to restrict State-owned corporations from investing outside their core business operations and to withdraw their capital from non-core businesses has put many small banks under tenterhooks.

The State Bank of Vietnam has so far approved recapitalization plans by about 16 out of 21 banks with chartered capital less than the required VND3 trillion. However, many of these banks will have to redo their plans.

Nam Viet Commercial Bank (Navibank), for example, must be thinking laboriously now to seek new funds as Vietnam Textile and Garment Group (Vinatex) finds it difficult to contribute more capital as pledged. Vinatex, which holds an 11% stake in Navibank, has not earned the Government’s blessing to continue investing in the bank.

Vu Duc Giang, CEO of Vinatex, told the Daily on Monday that the Government had not permitted the company to contribute more funds into this bank. Furthermore, “in the future, if the Government asks Vinatex to withdraw capital from Navibank, the corporation must do it,” he said on the phone.

It is reported that Navibank has got approval from the central bank to increase capital from VND1 trillion to VND3.5 trillion. To realize the scheme, the bank will issue 98.9 million shares to existing shareholders in the first phase, then sell 148.35 million shares to existing shareholders in the second phase.

However, this capital raising plan will not work if the big shareholder Vinatex does not participate.

Another case is Vietcombank, which is 90% owned by the State. This bank has also invested in other banks such as Gia Dinh Bank and Orient Commercial Bank, and now is rethinking its strategy.

Nguyen Hoa Binh, chairman of Vietcombank, told the Daily that the bank would not invest more capital to maintain its ownership of 19% in Gia Dinh Bank when the bank issues shares to increase capital from VND1 trillion to VND3 trillion.

Binh said for the long term, the bank would not invest more or even divest capital from other commercial banks due to consideration of business efficiency.

It is unlikely that Vietcombank will pump more capital into financial investments as the Government has just injected more funds into the bank to increase its chartered capital by 33% in order that the bank meets the newly required capital adequacy ratio (CAR) of 9% as stated in Circular 13.

Ho Huu Hanh, director of the central bank’s HCMC Branch, said that almost all banks in the city had submitted their fund raising plans to the branch, but the success of those plans would not be ensured following the Government’s decision asking State-owned corporations to narrow down their outside investments.

If banks cannot realize their recapitalization plans by the end of this year, they must merger with each other or get disbanded in the future.

In its decision, the Government has dictated that State-owned corporations obtain approval from the Prime Minister before making decisions whether to continue pumping capital or not. The Prime Minister has assigned the Ministry of Finance to evaluate the effectiveness of State investments at commercial banks.

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Banks again fail in attempt to charge ATM users

Photo: Tuoi Tre

With the central bank again rejecting their demand to be allowed to charge customers for ATM use, banks have resorted to collecting other charges like account management and invoice printing fees.

Nguyen Thi Thanh Hang, deputy chair of the Card Association, said 40 commercial banks had sought to introduce fees for ATM transactions and raise them in case of ATMs belonging to other banks.

But the State Bank of Vietnam said it is not yet the right time to do either.

Trinh Thuong Thuc, a senior executive at Vietcombank, said banks need to collect ATM charges because ATM cards are not profitable.

It costs around VND400 million (US$20,500) to set up an ATM while the monthly lease is VND10 million if the machine is in a prime location and VND3-5 million in other places.

Repair and maintenance can cost VND500 million a year per machine.

The director of a joint-stock bank’s card operations said the SBV should allow banks to collect fees to offset the expenses.

“The central bank regularly asks commercial banks to report on the number of ATMs they install and number of cards they issue. This means [it] wants the banks to expand their ATM networks and card issuance,” he remarked.

His bank is seeking to expand its ATM network but the board of directors has rejected the plan because of the loss on card services.

After several failed attempts to collect ATM charges, many banks are now planning to do that in other ways. Vietcombank will collect fees for ATM invoices at VND550 per transaction. But card users can also see details of their transactions on the screen and do not have to print them out.

Since March 31 Agribank has been charging fees to print transaction details (VND550 per transaction).

Commercial banks have also been conservative in expanding their ATM networks.

According to the Card Association, only 800 new ATMs were set up in the first half.

There are now 10,516 ATMs in the country while banks had issued a cumulative 23.3 million ATM cards.

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Credit sluggish as banks prefer bond purchases

Local commercial banks are more interested in bond purchases than providing loans, making the goal of lowering interest rates hard to reach, a senior government advisor said.

Interest rates have been high as capital flows do not move freely in the banking system in accordance with supply and demand, Le Duc Thuy, chairman of the National Financial Supervisory Commission, told Thanh Nien.

A tightened monetary policy has blocked money inflows, he said, noting that a restriction on interbank deposits prevents banks from lending their surplus cash to others.

The funds are flowing into government bonds instead, he said.

“At first look it seems like banks are losing money because they pay 11.2 percent on deposits and then invest in bonds with a yield of 10 percent,” Thuy said. “But in fact banks can use government bonds to get loans at the central bank’s refinancing rate of only 7 percent, hence (they make) a profit.”

“This is how banks have been doing their business, and it makes sense they are not interested in lending,” he said.

Thuy said the government should have sold its bonds to the central bank because right now it’s large commercial banks that benefit the most, leaving interest rates at high levels.

Prime Minister Nguyen Tan Dung in May told the State Bank of Vietnam to order lenders to bring down borrowing costs to 12 percent and cut the deposit rate to 10 percent.

The central bank said Wednesday that deposit rates were between 10.6 percent and 11.2 percent while lending rates ranged from 12 percent to 15 percent.

Vietnam’s “repeated” calls for commercial banks to lower their lending rates after tightening policy may damage market confidence, the International Monetary Fund warned this week.

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Credit sluggish as banks prefer bond purchases

Local commercial banks are more interested in bond purchases than providing loans, making the goal of lowering interest rates hard to reach, a senior government advisor said.

Interest rates have been high as capital flows do not move freely in the banking system in accordance with supply and demand, Le Duc Thuy, chairman of the National Financial Supervisory Commission, told Thanh Nien.

A tightened monetary policy has blocked money inflows, he said, noting that a restriction on interbank deposits prevents banks from lending their surplus cash to others.

The funds are flowing into government bonds instead, he said.

“At first look it seems like banks are losing money because they pay 11.2 percent on deposits and then invest in bonds with a yield of 10 percent,” Thuy said. “But in fact banks can use government bonds to get loans at the central bank’s refinancing rate of only 7 percent, hence (they make) a profit.”

“This is how banks have been doing their business, and it makes sense they are not interested in lending,” he said.

Thuy said the government should have sold its bonds to the central bank because right now it’s large commercial banks that benefit the most, leaving interest rates at high levels.

Prime Minister Nguyen Tan Dung in May told the State Bank of Vietnam to order lenders to bring down borrowing costs to 12 percent and cut the deposit rate to 10 percent.

The central bank said Wednesday that deposit rates were between 10.6 percent and 11.2 percent while lending rates ranged from 12 percent to 15 percent.

Vietnam’s “repeated” calls for commercial banks to lower their lending rates after tightening policy may damage market confidence, the International Monetary Fund warned this week.

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SBV to review capital rules

The State Bank of Viet Nam in Ha Noi. — VNS Photo

HA NOI — The State Bank of Viet Nam will review new strict capital adequacy requirements imposed on commercial banks by Circular No 13, following an outcry from the banking sector and a directive from the Government.

The announcement late Wednesday helped boost shares on the nation's stock market yesterday.

The review and analysis of Circular No 13 would aim to address shortcomings in various risk management provisons, including the imposition of stricter capital adequacy ratios, the State Bank said.

A deadline for conclusion of the review was not disclosed. However, last month, Prime Minister Nguyen Tan Dung ordered the State Bank to review the circular and report its findings and possible solutions before the new regulations were scheduled to take effect on October 1.

Circular No 13 would require commercial banks to increase their capital adequacy ratios from 8 to 9 per cent, as well as impose other risk management measures.

For instance, the circular would restrict banks from lending out funds from non-term deposits made by the State or State entities, the social insurance fund or commercial lending organisations.

According to media reports, many commercial banks and the Viet Nam Banking Association complained that this last provision would require commercial banks to leave idle as much as 35 per cent of deposited funds. They urged the central bank to extend the deadline for complying with the circular in order to give banks more time to restructure investment portfolios.

Fiachra Mac Cana, managing director of the research department of HCM Securities Co, predicted that the review would not result in any significant changes to the requirements but would allow banks more time to comply and adjust loan and capital ratios.

A central bank official who asked to remain unnamed told Viet Nam News yesterday that Circular No 13 was indeed the opening salvo of what would be an ongoing programme of stricter risk management measures to be imposed on the nation's banking system.

Many economists, the official noted, have complained that the capital adequacy ratios in Circular No 13 were still too low to adequately guard against risk. The newly passed Law on Credit Institutions to take effect in January includes provisions stricter than those in Circular No 13, he noted, but still short of the Basel standards for finance and banking. — VNS

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Commercial banks now cashed up

Commercial bank liquidity has improved dramatically since the State Bank of Vietnam injected a heavy volume of capital at reasonable interest rates into the open market in July.

The volume of valuable paper trading remained at about VND32-56 trillion (US$1.64-2.87 billion) from July to August.

It even climbed to VND110 trillion ($5.64 billion) in late June.

But the volume had fallen seven fold to VND7.72 trillion ($395.79 million) as of August 20.

"The reduction was very surprising," Thang Long Securities said in a report issued last week.

"It reflects the improvement in bank liquidity."

An Binh Bank's deputy general director Pham Quoc Thanh said: "A flexible monetary policy will help bank liquidity remain healthy until the year-end. Supply and demand will be balanced and interest rates will be stable."

In order to boost lending, banks like ABBank, Lien Viet Bank, HD Bank and Asia Commercial Bank are reducing borrowing costs to 10.7-11.7 percent per year for manufacturers, exporters, small and medium sized enterprises.

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Commercial banks now cashed up

Commercial bank liquidity has improved dramatically since the State Bank of Vietnam injected a heavy volume of capital at reasonable interest rates into the open market in July.

The volume of valuable paper trading remained at about VND32-56 trillion (US$1.64-2.87 billion) from July to August.

It even climbed to VND110 trillion ($5.64 billion) in late June.

But the volume had fallen seven fold to VND7.72 trillion ($395.79 million) as of August 20.

"The reduction was very surprising," Thang Long Securities said in a report issued last week.

"It reflects the improvement in bank liquidity."

An Binh Bank's deputy general director Pham Quoc Thanh said: "A flexible monetary policy will help bank liquidity remain healthy until the year-end. Supply and demand will be balanced and interest rates will be stable."

In order to boost lending, banks like ABBank, Lien Viet Bank, HD Bank and Asia Commercial Bank are reducing borrowing costs to 10.7-11.7 percent per year for manufacturers, exporters, small and medium sized enterprises.

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