Small banks to feel the squeeze

17:35 | 04/03/2011
Central banks are considering applying different credit growth requirements for different commercial banks, based on their scale.

The State Bank has announced its target to rein in the outstanding loans growth in commercial banks within 20 per cent, down from 23 per cent.

But, the decision has raised concerns among small- and medium-sized commercial banks. The banks complained that with just some VND1 trillion in capital, they are actually put under heavier pressure against large banks with hundreds of trillions of dong capital.

Tran Tan Loc, vice general director for Eximbank, said the 20 per cent limit is “very difficult to meet”. “The central bank’s target will definitely put commercial banks in difficulty,” he said. Eximbank’s current charter capital is VND10 trillion.

Deputy Governor of SBV Tran Minh Tuan admitted the difficulty in managing the credit plan as commercial banks’ credit scales were different.

“Some 100 per cent credit growth of a small bank is not as much as 1 per cent of large-scale one,” Tuan said, adding that State Bank would carefully discuss this problem before officially bring out the detailed decision.

Vietnam’s interest rates are extraordinarily high, of which deposit rate is of 14 per cent while lending rates of 20 per cent, even 24 per cent. The State Bank recently said it would take drastic measures to meet the target, in an effort to curb inflation and lowering interest rates.

Dr. Quach Manh Hao, vice general director for Thang Long Securities (TLS):

I had pointed out in one my study the “cheap cash position” of large commercial banks. Those banks, thanks to the great amounts of government bonds they hold, repo [sell with a repurchase agreement at a later day] the central bank those bonds at low discount rate, getting cash to loan smaller banks afterwards [with higher interest rate]. Small commercial banks, as do not have government bonds, have to borrow large banks with the “added cost”, or have to mobilise from the economy with high interest rates.

In consequence, we see the higher-than-usual interest rates in the economy. Large commercial banks with their “cheap cash position” can control the interest rates. This fact can partly explain for the high-profit of large banks in last years – which mainly came from treasury (trading capital in inter-bank market).

In the recent move, central bank had increased a series of interest rates, except discount rate still remaining at 7 per cent. Therefore, it’s hardly probable that the “cheap cash position” can be eliminated.

By Thuy Vinh

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