The State Bank of Viet Nam (SBV) has predicted that credit growth in the agriculture sector will rise 15 per cent, while in comparison the country's total credit growth is predicted at 12 per cent.

HA NOI (Biz Hub)— The State Bank of Viet Nam (SBV) has predicted that credit growth in the agriculture sector will rise 15 per cent, while in comparison the country's total credit growth is predicted at 12 per cen.

The figure was announced by the central bank yesterday during a seminar on banking credit for economic development, held by the Banking Academy.

According to the SBV, in the first three months of 2013 the total outstanding debt facing the entire economy rose 0.67 per cent compared to the last three months of 2012.

Of this figure, outstanding debt for agriculture and rural areas reached nearly VND579 trillion (US$27 billion) or 3.1 per cent up compared to late 2012. It accounted for more than 18 per cent of the entire economy's outstanding debt - not including debt owed to the Bank for Social Policy.

Currently, the outstanding debt for the seafood industry stands at 34.5 trillion ($1.6 billion), a 1 per cent decline from the last quarter of 2012, partly due to an 8 per cent decline in seafood exports. Meanwhile, outstanding debt for the purchasing of machinery and equipment in the farm sector reached VND1.32 trillion ($628 million), or a 16.4 per cent rise compared to late 2012.

As of April 25, the total outstanding debt of the entire economy rose 1.73 per cent

According to deputy director of the Monetary Policy Department at the State Bank, Pham Xuan Hoe, every year the entire banking system had to pay interest on savings at more than VND300 trillion ($14 billion) per year.

Of that figure, VND280 trillion ($13.3 billion) was paid to businesses and individual depositors, while the remainder went to the State Capital Investment Corporation, State Treasury and insurance organisations.

Some economists have calculated that the whole economy now has to pay VND400 trillion ($19 billion) per year in interest for commercial banks, Hoe added.

Lending interest rates

Speaking at the seminar, Nguyen Duc Huong, deputy chairman of LienViet PostBank said that by lowering lending interest rates to rescue ailing businesses, the central bank would face challenges. He noted that if loss-making businesses were rescued by the central bank with a lending rate even as low as zero per cent, they would still not survive, and at the same time depositors would rush to withdraw their money at the banks due to the lower interest. As a result, commercial banks would face the risk of illiquidity, leading to a liquidity race among commercial banks.

Huong conceded that the central bank could lower the lending interest rate at a reasonable ratio to protect depositors instead of trying to rescue loss-making businesses.

Nguyen Duc Trung, an official of the Banking Academy, was in agreement and declared that a consistently high lending rate from 2004-2012 had not hindered businesses from borrowing money. He added that currently a lower lending interest rate would not help raise credit growth. — VNS