Wary lenders and borrowers leave banks flush with cash

Excess liquidity in the banking system caused the interbank overnight rate to fall to 0.25 percent per year (down 0.13 percentage points) last week and the two-week rate to 0.4 percent per year (down 0.1 percentage points), the lowest level ever, brokerage Saigon Securities Inc. (SSI) said in their June 15-19 monetary market report.

According to the State Bank of Vietnam (SBV), credit growth from the beginning of this year to June 16 was just 2.13 percent.

Although commercial banks often accelerate credit disbursement in the second half of June to reach semi-annual growth targets, it will still be far lower than the 7.36 percent growth rate seen in the first half of 2019, the SBV said.

The impacts the Covid-19 pandemic on both banks and borrowers have caused the excess cash in the banking system. Borrowers are limiting business expansion with market demand gutted by the pandemic, while banks are being cautious about lending, fearing bad debt, analysts say.

Many businesses have also said that they are reducing production and giving priority now to reducing financial costs rather than borrowing more capital, as these loans will be hard to absorb given difficult market conditions, according to a survey done by the General Statistics Office (GSO).  

The owner of a small to medium-sized firm in Hanoi told VnExpress that in the current period, it was difficult to find a profitable business plan. Many businesses have, instead of expansion, opted for "hibernation", trying to maintain operations and liquidity until the crisis passes.

On the other side, leaders in the banking industry have all said that banks want to disburse, but their top priority is to maintain the safety and security of loans.

At a press conference early June, SBV Deputy Governor Nguyen Thi Hong said that the banking system welcomes borrowers, but only if they meet certain risk criteria.

Nguyen Tu Anh, Director of the General Economics Department of the Central Economics Committee, also said that lending was any bank’s main selling activity, so they do not want to refuse loans, but they need to ensure safety and recoverability for their own viability.

For instance, an executive of the private VPBank, who wished to stay anonymous, said that the bank was being cautious with new customers and choosing to up its focus on old customers, whose risks the bank has already measured.

Nguyen Hung, director of the private TPBank, also noted that as of May end, many customers were not conducting any business activity, so the bank's deposits increased, but loans did not increase proportionately.

In a report released at the end of April, the SBV said it was concerned that bad debt would increase due to the impacts of Covid-19.

The central bank had calculated that if the pandemic was brought under control in the first quarter, the total bad debt ratio on balance sheets and those sold to the Vietnam Asset Management Company (VAMC) would reach 2.9-3.2 percent at the end of the second quarter, and 2.6-3 percent at the end of 2020.

If the pandemic crisis extends to the second quarter, the bad debt ratio could increase to nearly 4 percent by the end of the second quarter, and to 7 percent or even higher by the end of 2020.  

Last year, the banking sector’s internal NPL ratio, which excludes debts sold to the state-owned debt collecting agency VAMC was 1.89 percent, in line with the SBV’s target of 2 percent.