Commercial banks were confident they would be able to get securities loans below 3% of total outstanding loans prior to December 31, 2007, as required by the State Bank of Vietnam.

Their accomplishment is a significant victory since bankers feared the central bank’s requirement would not be met. Bankers also complained that the reduction timetable was too short. They were concerned they could not enforce the termination of credit contracts before due dates.

By December 10, 2007, SeABank had collected on loans given to securities investors and on the 13^th announced they had capped the total at 2.78% of total outstanding loans (VND9.04tril or $564.75mil)

Deputy General Director of ACB Nguyen Thanh Toai said on behalf of his institution on December 15 the bank would successfully be under the 3% requirement prior to December 31.

“The central bank’s mandate on limiting securities loans gave us no other choice than to urge clients to pay off their debts sooner than initially required. We also increased our non-securities lending to lower the ratio,” said Mr Toai, adding that their efforts have affected the bank’s business plan.

Mr Toai says ACB’s total assets are numerous, providing it with the ability to more easily mobilize capital and therefore reduce securities loans without taking too much of a hit. Meanwhile, other, less capital rich banks are having trouble fulfilling the central bank’s requirement.

Besides SeABank and ACB, many other joint stock banks have also reported success in collecting debts and reducing securities loans. At Saigon-Hanoi Bank and Techcombank, securities loans now account for 1.7-2% of total outstanding loans.

However, experts warn drastic measures to fulfill the central bank’s directive may result in harmful side effects.

Banks finding it hard to collect debts are trying to increase total outstanding loans, resulting in overly high credit increases.

According to the State Bank of Vietnam, total outstanding loans have increased by 33% so far compared to the end of 2006, and 42% over the same period in 2005. VND outstanding loans have increased by 31%, which is somewhat alarming when compared to the 22-25% forecast earlier this year.

Experts say that once banks try to push lending at any cost, they may ease credit requirements, which will result in outstanding loans. Some joint stock banks have seen a surprisingly high credit increase of 200-250% compared to 2006

Source: TBKTVN, DTCK.