Ms Pham Thi Loan, Chairman and General Director of Viet A Investment Commercial Industrial Group Holdings Company said that demand for credit of enterprises has aggressively decreased. Specifically, the number of contracts of enterprises in 2013 has decreased in half over the previous year, total revenues are estimated to reach only hundreds of billion dong compared to thousands of billion dong in previous years. Enterprises require about VND50 – 70 billion of loans to serve their business from date to the year end. Although enterprises have worked with many banks, and many banks have come to enterprises to offer loans, by now there has not been any credit contract. According to Ms Loan, the reason is that interest rates are still higher than the level enterprises can afford, as well as credit procedures are still complicated. “Although banks have lowered their credit interest rates, we are paying the average interest rate of 12 percent per year”, Ms Loan said.
Demand and capacity for loans have decreased
Viet A is just a screen of a picture of demand – supply in the market, which has somehow explained the reason why credit growth of the banking system is still stagnant. According to report of the State Bank Vietnam (SBV), to the end of August, credit growth rate of the banking system reached only 6.45 percent over the end of 2012, while deposit growth rate reached 10.49 percent.
The economy has been struggling with difficulties. Financial results of quarter II of listed enterprises – mostly leading enterprises – showed that nearly 30 percent of enterprises suffered losses. Also in the listed enterprise segment, there are more than 300 enterprises with DER (debts over equity) higher than average DER of their sectors, of which 100 enterprises have short term debts higher than equity. Take GGG as an example, equity reached VND65 billion, while accumulated losses were VND97 billion, short term debts were over VND106 billion (short term over equity ratio reached 1.635). Or BHV has short term debts of over VND26.7 billion, accumulated losses of VND18.4 billion, while equity currently is only VND234 million (short term debts are 114 times higher than equity), etc. These figures show that even if enterprises have demand for loans, they are not creditworthy to access loans.
“Interest rate dumping”
There are only three months left to finish the growth plan of year – all credit, revenues and profits, therefore banks are finding every way to pump loans.
On 17th September, Sacombank said that they have implemented the loan package of VND2,000 billion with minimum interest rate of 9 percent per year for the first 3 months, and they will continue apply favourable interest rates for remaining months. Their targeted customers are enterprises, households, individuals and shopmen preparing for the Lunar New Year of 2014.
Sacombank’s credit package is only one of many credit packages that are offered to the market. Therefore, to outstand, banks have to find new ways to offer loans. For example, Oceanbank has publicly introduced the programme of “interest rate dumping” in their website with loans for buying houses, cars and other goods at interest rate of only 5.91 percent – the lowest rate in the market currently. The interest rate will be applied for the whole year, or at least in 6 months, not just in several first years like other banks do. Mr Tran Thanh Quang, Deputy General Director of Oceanbank said that, with the “dumping” interest rate, the bank has to compensate from other services.
A general director of a bank in Hanoi said that it is time for banks to “beg for” customers. On one hand, to prepare for loan demand at the end of the year, banks have to continue increasing capital mobilisation through increasing interest rate of long term loans, promotion programmes, awards, running lottery programme for depositors. On the other hand, they have to find every way to attract depositors, and reducing interest rate is the very direct competition method. He judged that, after Oceanbank, many banks will offer attractive credit packages, and the banking system will be pushed into an interest rate race.