Easing of safety rules sparks lending rush

Local banks are taking advantage of the central bank’s recent relaxation of bank safety regulations to boost lending and meet the year’s credit growth target after a sluggish nine months.

The general director of a Ho Chi Minh City-based lender said the bank had faced difficulties in attracting deposits during the first nine months. Besides, it had to set aside reserves to meet strict safety requirements supposed to take effect this month.

Now that the rules have been amended, his bank wants to focus on lending, after posting a credit growth of only 5 percent over the last nine months, he said.

Do Minh Toan, deputy general director of the Asia Commercial Bank, said the bank will focus on businesses in the agricultural sector who are in need of funds to purchase rice and other crops. These clients can help increase the bank’s credit growth, he said.

Other bankers have said they are targeting corporate clients, especially exporters.

Dam The Thai, deputy general director of the HD Bank, said the competition between banks is getting harsh. His bank will slightly lower its lending rates this month to make sure it can retain and get more customers, he said.

The Vietnam Banks Association has asked members to reduce deposit rates to no more than 11 percent by October 15, according to a statement on the central bank’s website on Monday.

For non-term deposits and deposits of less than three months, the association asked commercial banks to make a bigger reduction to create a “suitable” interest-rate curve to attract long-term funds, according to the statement. Members were also asked to lower dollar-deposit rates and to cut borrowing costs to spur lending, according to the statement.

This call for interest rate cuts came after the State Bank of Vietnam adjusted safety rules last week, allowing banks greater scope to lend. Among the adjustments is permission to use 25 percent of non-term deposits made by businesses for lending, starting October 1.

Economist Le Tham Duong of the Ho Chi Minh City Banking University said dong-denominated loans have expanded at a slow pace so far this year. As a result, local banks will compete for clients in the next months, which will help bring interest rates down.

Duong said to speed up this process, the government should increase money supply and lower the yields on government bonds to less than 10 percent a year. When banks cut back their investments in government bonds, they would pay more attention to lending to businesses, he said.

The Vietnam Banks Association has requested that the central bank cut its refinancing rate, discount rate and interest rates in open market operations to help banks lower their interest rates. The central bank on September 27 set its refinancing rate at 8 percent and its discount rate at 6 percent.

Loans are estimated to have risen 19.5 percent in the January to September period. Vietnam has set an annual target of 25 percent credit growth for this year.

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Easing of safety rules sparks lending rush

Local banks are taking advantage of the central bank’s recent relaxation of bank safety regulations to boost lending and meet the year’s credit growth target after a sluggish nine months.

The general director of a Ho Chi Minh City-based lender said the bank had faced difficulties in attracting deposits during the first nine months. Besides, it had to set aside reserves to meet strict safety requirements supposed to take effect this month.

Now that the rules have been amended, his bank wants to focus on lending, after posting a credit growth of only 5 percent over the last nine months, he said.

Do Minh Toan, deputy general director of the Asia Commercial Bank, said the bank will focus on businesses in the agricultural sector who are in need of funds to purchase rice and other crops. These clients can help increase the bank’s credit growth, he said.

Other bankers have said they are targeting corporate clients, especially exporters.

Dam The Thai, deputy general director of the HD Bank, said the competition between banks is getting harsh. His bank will slightly lower its lending rates this month to make sure it can retain and get more customers, he said.

The Vietnam Banks Association has asked members to reduce deposit rates to no more than 11 percent by October 15, according to a statement on the central bank’s website on Monday.

For non-term deposits and deposits of less than three months, the association asked commercial banks to make a bigger reduction to create a “suitable” interest-rate curve to attract long-term funds, according to the statement. Members were also asked to lower dollar-deposit rates and to cut borrowing costs to spur lending, according to the statement.

This call for interest rate cuts came after the State Bank of Vietnam adjusted safety rules last week, allowing banks greater scope to lend. Among the adjustments is permission to use 25 percent of non-term deposits made by businesses for lending, starting October 1.

Economist Le Tham Duong of the Ho Chi Minh City Banking University said dong-denominated loans have expanded at a slow pace so far this year. As a result, local banks will compete for clients in the next months, which will help bring interest rates down.

Duong said to speed up this process, the government should increase money supply and lower the yields on government bonds to less than 10 percent a year. When banks cut back their investments in government bonds, they would pay more attention to lending to businesses, he said.

The Vietnam Banks Association has requested that the central bank cut its refinancing rate, discount rate and interest rates in open market operations to help banks lower their interest rates. The central bank on September 27 set its refinancing rate at 8 percent and its discount rate at 6 percent.

Loans are estimated to have risen 19.5 percent in the January to September period. Vietnam has set an annual target of 25 percent credit growth for this year.

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Sept dollar credit growth up strongly in HCMC

HCMC – Outstanding loans in foreign currency, mostly the U.S. dollar, at credit institutions in HCMC by the end of this month are forecast to expand 36% from late last year to VND186.1 trillion, according to central bank figures.

The figures from the central bank’s HCMC branch show September dollar credit growth at commercial banks in the city is seen reaching 6.1% month-on-month, up from the 1% recorded in August.

Banks have reported an 8.5% rise in September dollar mobilization from August after they hiked dollar deposit rates early this month. Meanwhile, the amount of dollars raised in August was down 4% month-on-month.

Therefore, banks in the city may have raised a total of VND181.25 trillion by late this month, up 8.4% from late 2009. So outstanding dollar loans continue surpassing mobilization in September and part of the reason is that foreign banks have ample cheap dollar funds from their mother banks and foreign institutions.

In contrast to the dollar mobilization, HCMC banks’ Vietnam dong fund raising in the first nine months this year has been higher than credit growth. By late September, the volume of dong deposits is projected to amount to VND530.7 trillion, up 21.7% from late last year, and outstanding loans VND463.3 trillion, up 9.4% from late 2009.

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Sept dollar credit growth up strongly in HCMC

HCMC – Outstanding loans in foreign currency, mostly the U.S. dollar, at credit institutions in HCMC by the end of this month are forecast to expand 36% from late last year to VND186.1 trillion, according to central bank figures.

The figures from the central bank’s HCMC branch show September dollar credit growth at commercial banks in the city is seen reaching 6.1% month-on-month, up from the 1% recorded in August.

Banks have reported an 8.5% rise in September dollar mobilization from August after they hiked dollar deposit rates early this month. Meanwhile, the amount of dollars raised in August was down 4% month-on-month.

Therefore, banks in the city may have raised a total of VND181.25 trillion by late this month, up 8.4% from late 2009. So outstanding dollar loans continue surpassing mobilization in September and part of the reason is that foreign banks have ample cheap dollar funds from their mother banks and foreign institutions.

In contrast to the dollar mobilization, HCMC banks’ Vietnam dong fund raising in the first nine months this year has been higher than credit growth. By late September, the volume of dong deposits is projected to amount to VND530.7 trillion, up 21.7% from late last year, and outstanding loans VND463.3 trillion, up 9.4% from late 2009.

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Inflation pressure to increase in 4th quarter: expert

HCMC – Given the higher consumer price index in Hanoi and HCMC in September, experts have expressed concern that the whole country would see a high CPI this month, which may prompt the inflation pressure to rear its head again in the fourth quarter.

HCMC posts an estimated September CPI growth of 0.97% month-on-month after declining in two previous months while Hanoi’s CPI growth this month is expected at 0.96%.

Vu Dinh Anh, deputy head of the Market and Price Research Institute under the Finance Ministry, explained that September CPI was high due to promotions of home appliances and the beginning of the school year.

He, however, added CPI of Hanoi and HCMC this year did not affect much on the country’s inflation like in previous years, which may be due to the method of price calculation by the General Statistics Office. Anh therefore expected that September CPI of the country would be around 0.5%.

Anh also said that there would be many factors exerting pressure on inflation in the last quarter, including high global prices, and the country’s fiscal and monetary policies.

Recently, the global gold price has hit a record high, and technically that is a signal of high inflation. Global prices of some commodities such as rice and coffee have accelerated, proving the assumption above, the expert said.

From now to the end of the year, the demand for imports will increase strongly and in fact, banks have revised up their deposit rates in the U.S. dollar, meaning the demand for dollars has been increasing, he said.

In terms of macro-economic factors, the fourth quarter usually sees big State spending while credit tends to grow strongly in the last months of the year, which will also put inflation under pressure, Anh said.

Given the credit growth of about 3% in August, Anh said the possibility of credit growth exceeding 25% this year was high. He said the 25% growth target for outstanding loans was the ceiling level set to curb inflation, not the floor to push the economic growth as many people had thought.

“In my opinion, we do not need to strongly push credit growth as the country’s gross domestic products can still increase by 6.5% given the current credit growth,” he added.

The expert said he expected the Government could control the inflation at the single-digit rate this year.

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Vietnam lenders shrug off Fitch downgrades

Two of the nation’s leading lenders, Vietcombank and Asia Commercial Bank, have been downgraded by Fitch Ratings, but both the banks and experts are unfazed.

Fitch Ratings last week downgraded the two banks to “D/E” from “D”, citing risks related to strong credit growth as the main reason.

Fitch said in its statement that the downgrade “reflects Vietcombank’s substantially weakened balance sheet arising from excessively strong loan growth and fragile underlying loan quality.” The bank, Vietnam’s third largest lender, could also be hit by its exposure to the troubled state-owned Vietnam Shipping Industry Group, Fitch said.

The credit rating agency expected Vietcombank, along with other local banks, to continue to “face a difficult environment.”

Fitch also found the loan growth at Asia Commercial Bank (ACB) excessive, saying this would put pressure on its liquidity and loan quality. “Fitch expects the bank’s capitalization to be insufficient in maintaining strong loan growth for a higher market share, and to adequately cushion against potential high credit costs.”

The agency estimated that by the end of this month, the ACB’s capital adequacy ratio would be lower than the new regulatory minimum of 9 percent.

However, both ACB and Vietcombank protested the downgrade, saying that Fitch had made its assessment based on information published by the media, and that it was not in Vietnam, where it could “have a better look.”

‘Overcautious’

Ly Xuan Hai, chief executive of ACB, said Vietnam’s credit growth averaged 34 percent a year over the past five years, and during the period loans expanded by 55 percent a year at his bank

The rates were normal considering that the economy grew between 7.5 and 8 percent a year on average, driven mainly by the banking system rather than the stock market, Hai said.

He said Fitch’s worry about strong credit growth hurting liquidity showed it was being “overcautious.”

“ACB has always had high liquidity. Its current loan-todeposit ratio is 56 percent versus the 74 percent ratio claimed by Fitch.”

Hai said Fitch was also concerned about high growth in foreign currency loans that could affect the bank’s liquidity and loan quality. However, he affirmed that the foreign currency loans were mainly offered to exporters or creditworthy clients, which means the risk was very low.

Vietcombank Deputy General Director Nguyen Thu Ha said Fitch was being negative in assessing local banks.

She said foreign investors in Vietnam will not depend on Fitch’s assessments as they have a more objective opinion of the economy.

Pham Quang Dung, another deputy general director, told the local online newspaper VnExpress that Vietcombank’s high credit growth of 26 percent last year was due to a government’s stimulus program that subsidized lending interest rates for businesses.

“Even though it was high compared with other banks in the world, we lost our market share with that rate in Vietnam,” he said, noting that the credit growth rate for the industry last year was nearly 40 percent.

Dung also said the bank has received approval to raise its capital by VND4 trillion, a move which would increase its capital adequacy ratio to 10.5 percent from the current 8.45 percent.

No surprise

Although both Vietcombank and ACB protested Fitch’s assessment, they said they found the new ratings unsurprising because Fitch had already downgraded the country’s credit rating from “BB-” to “B+” – four levels below investment grade – a month ago.

Le Xuan Nghia, vice chairman of Vietnam’s National Financial Supervisory Commission, also told Tuoi Tre newspaper that it was not a big surprise to see Fitch downgrade two leading banks in Vietnam. “The individual rating of a business cannot be higher than the rating of the country where it operates,” he said.

However, Nghia said, Fitch is not always accurate in its assessments. He said ACB has been the best partly-private bank in Vietnam, both before and after the financial crisis.

He said local banks would have to raise their capital to meet safety requirements this year. ACB and Vietcombank have large capital holdings and are preparing to increase them further to meet international standards, he said, adding credit ratings like Fitch’s are for reference only.

“In general, the prospects for Vietnam’s economy are bright and the banking system is stable,” he said.

Nguyen Canh Thinh, brokerage manager at Ho Chi Minh City Securities Corporation, said in an interview with VnExpress on Monday that Fitch’s downgrade of the banks will not have any major impact on the market in the short term. The stock market rose after the decision, he noted.

“The downgrade, however, will have certain effects on banks in the medium term, especially when they call for investment. On a larger scale, foreign organizations may be more concerned about Vietnam’s financial market.

“To be fair, the Vietnamese banking system has improved, and is catching up with regional and international standards step by step,” Thinh said.

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Fitch downgrades Vietcombank, ACB on strong credit growth

HCMC – Bank for Foreign Trade of Vietnam (Vietcombank) and Asia Commercial Bank (ACB) have seen their rating downgraded to ‘D/E’ from ‘D’ by the international credit rating agency Fitch, which cited risks related to strong credit growth.

Fitch in its statement says that the downgrade reflects Vietcombank’s substantially weakened balance sheet arising from excessively strong loan growth and fragile underlying loan quality.

Furthermore, Fitch believes Vietcombank’s individual rating remains under pressure, due to increasing risk of high credit costs arising from underlying weak loan quality and limited capitalization.

Also, Fitch expects Vietcombank, along with other local banks, to continue facing a difficult environment, particularly given the Vietnamese Government’s weakening ability to manage inherently volatile market conditions when needed.

Vietcombank reported loan growth of 26% in 2009, which decelerated to 12.7% year-on-year in the first half this year, resulting in the aggregate growth of 118% between 2006 and mid-2010. However, Fitch notes that there is a risk of Vietcombank’s loan growth accelerating in the second half, given the Government’s strong encouragement to grow credits by up to 25% in 2010 as a means of supporting economic growth.

The same reason has been given for the downgrade on ACB’s Individual Rating to ‘D/E’ from ‘D’. Fitch estimates that, by end-September 2010, ACB’s capital adequacy ratio (CAR) would be lower than the new regulatory minimum of 9% that is effective from October 1.

ACB maintained its excessive loan growth in the first half this year with a 42% year-on-year increase. Fitch says that the bank’s target for 2010 is 54%, which implies a likely acceleration in lending in the second half this year, and that, if achieved, would equate to growth of 464% during 2006 - 2010.

ACB plans to raise equity capital by VND1.6 trillion and issue bonds worth VND3 trillion by end-October 2010. However, Fitch expects the bank’s capitalization to be insufficient in maintaining strong loan growth for a higher market share, and to adequately cushion against potential high credit costs.

Fitch also affirms Individual Rating at ‘D/E’ and ‘E’ for two State-owned banks namely the Bank for Investment and Development of Vietnam (BIDV) and Bank for Agriculture and Rural Development of Vietnam (Agribank), respectively.

The downgrade sparked protests from Vietcombank.

Pham Quang Dung, deputy general director of Vietcombank, told the local online newspaper Vnexpress that Fitch made assessment based on information released by the bank while the agency was not here to understand the reality of Vietnam.

Dung said the bank had got approval from the Prime Minister to spur capital by VND4 trillion that would make Vietcombank’s CAR rise to 10.5% from the current 8.45%.

“We have explained this situation to Fitch but they did not take it,” he added.

Commenting on high credit growth last year, Dung said that was due to the Government’s subsidized lending program and Vietcombank’s outstanding loans increased only 26% compared to the industry-wide growth rate of nearly 40%.

Although such a credit growth rate is high compared to international standard, Vietcombank still faced the threat of losing its market share in Vietnam, he said.

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