Central bank should be bolder in cash support policy: expert

The reason banks are reluctant to lend to lossmaking companies is they fear that their capital adequacy ratio would be impacted by bad debts, said Truong Van Phuoc, former acting chairman of National Financial Supervisory Commission.

To deal with this the State Bank of Vietnam (SBV) should lower the risks ratio of loans for manufacturing, trade and other sectors that create jobs, he told VnExpress.

This mechanism would help banks be bolder in giving loans while risks are managed, he said.

"Traditional thinking is not suitable to deal with the unprecedented Covid-19 situation," he said, adding that non-traditional thinking would unleash monetary and fiscal policies that help facilitate practical policies that are big enough to support the majority of businesses.

The fourth Covid-19 wave has caused major difficulties for Vietnamese companies, especially private businesses that account for 40 percent of the country’s GDP and attract 85 percent of the total workforce.

Many companies have reported challenges although 16 commercial banks have made moves to lower loan interests.

The state bank has pumped VND3 trillion into banks so they could lower their lending interests on VND100 trillion worth of loans from 4.5 percent to 3-4 percent annually.

However, Phuoc said the scale of this support is too small and should instead account for 20 percent of total outstanding loans, which is VND2,000 trillion worth of loans at a 3 percent annual interest.

To do this, the state bank needs to pump VND60 trillion into the economy, 20 times the current amount.

He said the state bank has only given a modest amount due to fear of causing double-digit inflation as in what followed the 2009 global crisis.

To prevent this, the state bank could give banks a reduction in their tax duties over the next two years by the same amount they would have lowered in interests, he added.