2007’s ups and downs

There were three key credit market landmarks in 2007.

The first was in February 2007 when all commercial banks had to increase their deposit interest rates as the stock market became overly hot. Many withdrew money from banks to invest in the bourse. As a result, banks had to offer more attractive interest rates in order to retain customers.

In August 2007, the credit market quieted when the stock market slipped. The sliding bourse prompted investors to turn back to bank deposits. Banks reduced interest rates because of a depositor surplus.

However, the credit market warmed in November when banks needed more short-term capital to fund enterprises imports, but they were unable to raise interest rates because they were asked to help curb inflation.

Control factors

Analysts believe interest rates will be increased and remain high through, at least, early 2008. Rates are sure to slightly increase in January 2008 when capital demand is high during the Tet season.

What worries commercial banks most is that the central bank may, as it has with securities loans, control lending to real estate investors.

Ho Huu Hanh, Director of the HCM City Branch of the State Bank of Vietnam (SBV), has confirmed that the central bank is reviewing real estate loans provided by commercial banks.

According to Le Xuan Nghia, Director of the Banking Development Strategy Department under SBV, real estate loans should be less than 10% of total outstanding. However, in some banks, the ratio is 20% of total outstanding loans, well beyond reason.

Director of a joint stock bank also fears the central bank will impose regulations on real estate lending. If so, joint stock banks, which focus on real estate funding and consumer credit, will be ht hardest (most State-owned banks’ clients are companies and institutional investors).

However, the director said that if such a decision is enacted, it will face strong opposition from bankers and experts. He said the central bank should intervene as little as possible in the operation of commercial banks

Analysts also say that the central bank’s efforts to limit real estate lending will adversely affect the real estate market, thus hindering national economic development.

Source: Tuoi tre.