Businesses gain access to cheaper bank loans

Monday, May 19, 2014 09:00

Many lenders like VPBank, SeABank, and ACB have reduced interest rates on deposits of less than six months, especially for one or two months, which have been cut from 5.7 and 6 per cent to 5.5 per cent. Interest rates on deposits of over two months are 5.8-6 per cent.— Photo chinhphu


Since mid-April businesses have been able to borrow more easily from banks, many of which have cut both deposit and lending interest rates in addition to launching several preferential credit programmes.

Many lenders like VPBank, SeABank, and ACB have reduced interest rates on deposits of less than six months, especially for one or two months, which have been cut from 5.7 and 6 per cent to 5.5 per cent. Interest rates on deposits of over two months are 5.8-6 per cent.

Rates on the inter-bank market too have been going down. In the last week of April dong interest rates for various terms dropped: interest on loans ranging from overnight to one month was down by 0.15-0.25 per cent to 1.75-3 per cent per year.

These cuts are helping banks reduce their cost of funds and thus their lending rates, enabling them to boost lending.

An executive at a commercial bank in HCM City, who asked not to be named, said though credit is showing signs of growing again banks continue to face several difficulties.

Though interest rates have plummeted over the last few months people continue to deposit money in banks.

According to the State Bank of Viet Nam, by April loans were up by 0.62 per cent for the year and deposits by 3.93 per cent.

Awash in funds, lenders are not only reducing loan interest but also offering businesses preferential credit.

BIDV, Agribank, Vietcombank, Sacombank, DongAbank, Eximbank, ACB, and ABBank recently signed a VND1.107 trillion ($52.46 million) contract to lend to 45 businesses in HCM City's Binh Thanh District.

Businesses are no longer too worried about interest rates but expect banks to further loosen up.

But data from BIDV shows around 35 per cent of companies, most of them small and medium-sized, are unable to borrow from banks.

Analysts said since banks are afraid of bad debts lending regulations remain stringent. Besides, many businesses remain in poor shape and have low sales because of the low demand.

With high inventories plaguing them, they do not want to borrow to expand production and other activities.

Investment changes

Ngo Thi Hoang Hoa of HCM City's Tan Binh District said she has decided to withdraw VND50 million from a bank to make a deposit for a luxury apartment in District 4.

"In the past when deposit interest rates were high I deposited all my savings in the bank. But now it has gone down to very low levels and so I will withdraw the money from the banks to buy an apartment.

"After buying this apartment I will rent it out. I also have a plan to sell it when the housing prices go up."

Hoa is among many people in HCM City who have recently shifted their savings from banks to property.

This change has seen the housing market become much busier than in recent months.

A similar thing is also happening in Ha Noi. In the last two weeks the housing market has seen a buzz of activity with several apartment projects opening sales. They include CT Number One Van Canh, Berriver Long Bien, PH Landmark Tower, and C37 Bac Ha, who virtually managed to sell out immediately.

According to data from the Ministry of Construction, in the first four months of the year real estate trading floors in Ha Noi saw around 2,300 transactions, triple the figure from a year ago.

The HCM City Department of Planning and Investment reported that by April 4 the city had attracted foreign direct investment worth $779 million, with $300 million going into property.

Analysts said property is again becoming the most popular asset class because of several reasons including the Government's efforts to thaw the housing market.

Many investors believe housing prices will recover in one or two years from now as is the norm after touching bottom.

Another reason is that other asset classes are becoming less attractive: gold is very risky due to pricing and policy volatility, and the stock market too is unstable.

The recovery in the housing market has also been sparked off by the many transportation projects that have been implemented in the last few years to link suburban and downtown areas of major cities like Ha Noi and HCM City, facilitating easy travel.

Record forex reserves

According to the State Bank of Viet Nam, foreign exchange reserves reached a record US$35 billion by late April.

For many it is a good augury since they think this means the exchange rates will be stable.

But the fact of the matter is that the exchange rates have been stable for three years now. Also during this period the dollarisation of the economy decreased significantly, with people no longer keeping much foreign exchange, as the sharp falls in foreign currency deposits and loans reveal.

Clearly, the size of the foreign reserves no longer has any significant impact on the forex rates.

The $35 billion reserves are equivalent to 12 weeks' imports, much below the recommended level of 20 weeks' imports.

It is also equivalent to 20 per cent of the country's GDP, also much lower than the reserves held by many countries in the region like China and Thailand.

Some analysts even warned that the sharp increase in the forex reserves is not a truly good sign since one of the main reasons for it is the plunging trade deficit.

The sharp drop in trade deficit is indeed a matter of concern for an economy like Viet Nam that needs a reasonable trade deficit to spur development. A rather high trade deficit usually means companies import more equipment and feedstock for production.

In the last three years the country has gone from having a large trade deficit to a surplus. Meanwhile, its investment-to-GDP ratio has decreased from 40 per cent to 30 per cent, meaning that the economy's capacity to absorb capital is very low.

City encourages retailers to expand

HCM City is encouraging retailers, especially supermarkets and convenience stores, to expand their networks to suburban areas as part of an action programme for socio-economic development recently approved by the administration.

Through this, the city hopes to have an additional 43 supermarkets and 92 malls by 2020. District 1 will have the largest number while Binh Chanh District will have 26 supermarkets and District 5 will have 31 shopping centres.

The city for its part will also build shopping centres and markets in suburban districts and repair and upgrade 69 existing ones.

There are 82 supermarkets, 25 trade centres, and 240 wet markets in the city, the country's biggest retail market.

According to the HCMC Statistics Office, retail revenues in 2013 rose by 12.6 per cent from the previous year to nearly VND606.5 trillion (US$24 billion).

The inflation-adjusted growth rate was 8.6 per cent, higher than the 8.5 per cent achieved in 2012. — VNS

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