A bank teller counts cash in Hanoi.(Photo: tinnhanhchungkhoan.vn)As firms are facing many difficulties and the capital absorption of the economyin the first half of 2023 hit the lowest level in the past 13 years, theGovernment has urgently required the banking industry to further reduceinterest rates and pump capital into the economy.
After four rate cuts this year, Deputy Governor of the State Bank ofVietnam (SBV) Dao Minh Tu said if conditions are favourable, the central bankwill make further cuts before the end of the year.
However, even if the SBV’s policy rates do not decrease, the Government hasasked commercial banks to try and cut rates based on cost reductions.
Many large firms have been offered loans by banks with interestrates of 7 to 9%. However, not all firms can have access to this lower rate. VuCong Huan, director of HDC Group Joint Stock Company, said his company ishaving to borrow unsecured loans with an interest rate of 14%, which is stilllower than last year, but obviously unsustainable nonetheless.
Dr Nguyen Thi Mui, a member of the National Monetary and Financial PolicyAdvisory Council, said expanding credit in the current context is difficult,banks cannot lend when firms cannot prove their ability to repay loans and areunable to manage cash flows.
Many firms asked banks for unsecured loans, but promoting unsecured lending isnot possible when the two sides have not built trust, Mui said, explainingthat cheap or subprime credit is very risky and if banks are not careful,it could spillover and affect other areas of the economy, much like in the USin 2008.
Nguyen Quoc Hung, General Secretary of the Vietnam Banks Association, alsonoted the responsibility of the lender is greater than that of theborrower, which feeds into a bad debt cycle. Banks can't lend at allcosts: they must first ensure safety.
Data from FiinGroup showed in the second quarter of 2023, the total profitof non-bank firms decreased by nearly 42%. According toFiinGroup, firms no longer have high financial leverage, but are eatingthrough capital nonetheless.
Instead of pushing new credit into the economy, the Government’s policiesshould focus on lowering rates and rescheduling existing rates and loan paymenttimes.
Monetary policy is shifting to a more flexible and loose direction, butaccording to Pham Chi Quang, Director of the SBV’s Monetary Policy Department,relying on credit to boost the economy is not the safest measure.
An economy based on high lending poses systemic risks as bankcapital is short-term while the demand for medium and long-term loans is huge.Besides bank credit, it is necessary to focus on developing other safe capitalchannels such as the stock and corporate bond markets, Quang suggested.
Dr. Le Duy Binh, Managing Director of Economica Vietnam, said lowering interestrates and recklessly injecting credit into the economy could cause a boost inspeculative fields, leading to market bubbles. Therefore, credit growthshould only be at a reasonable dose to stimulate economic growth.
Real estate is the most capital-thirsty industry, with high capital absorptioncapacity. This is also a highly pervasive field if capital flows into segmentsserving real needs such as residential and industrial park projects. Fundingfor real estate recovery is one of the necessary solutions to warm up thecurrent economy.
However, real estate is a high-risk sector and relying on cheap creditwill have dangerous consequences. Besides interest rate cuts to stimulateproduction, there must be solutions to warm up the stock and bond marketsto reduce the dependence on bank credit.
Fortunately, the stock market has recovered since the beginning of thisyear while the bond market seems to have passed its most difficult period.
Lower interest rates are supporting the two markets. The missing piece of thepuzzle is investor confidence./.
VNA
