Compliance with credit regulations: Part I: Banks quietly "break the rules"
Implementing Resolution 11 of the Government on curbing inflation, stabilizing the macro economy, and ensuring social security, the State Bank has issued Directive No. 01, according to which it will implement a tight and cautious monetary policy, control the credit growth rate below 20%, the growth rate of total means of payment at about 15-16% - and stipulate the ceiling interest rate of capital mobilization of banks not to exceed 14%/year. However, these regulations are being quietly "broken" by banks.
Implementing Resolution 11 of the Government on curbing inflation, stabilizing the macro economy, and ensuring social security, the State Bank has issued Directive No. 01, according to which it will implement a tight and cautious monetary policy, control the credit growth rate below 20%, the growth rate of total means of payment at about 15-16% - and stipulate the ceiling interest rate of capital mobilization of banks not to exceed 14%/year. However, these regulations are being quietly "broken" by banks.
Capital loss?
The report data for the first 6 months of 2011 of the State Bank of Nghe An province shows that the total mobilized capital in the province is estimated at 29,750 billion VND, up 5.6% compared to the beginning of the year. Of which, customer deposits are estimated at 6,010 billion VND, down 588 billion VND, -8.9%. Saving deposits are estimated at 21,810 billion VND, up 9.8% compared to the beginning of the year.
Meanwhile, the total outstanding loans to the market of credit institutions in the area are estimated at VND54,560 billion, up 17.7% over the beginning of the year.
Thus, the loan amount is almost double the mobilized amount, although it includes a part of the outstanding debt of the policy sector, but most credit institutions have to transfer capital in the system to serve lending in the province.
Implementing credit policies - requires serious involvement
of banks
This shows that Nghe An is a province that absorbs capital strongly. Capital mobilized in the area mainly increased in the first quarter, in the second quarter of 2011, capital tended to decrease because banks limited lending and interest rates increased, so businesses made the most of deposits to serve production and business, leading to a sharp decrease in customer deposits compared to the beginning of the year.
Mr. Phan Huu Phung - Director of Saigon Commercial Joint Stock Bank Branch said: at the time of February 2011, the total capital mobilized in the Branch's area was up to nearly 900 billion VND, but by June 15, 2011, the total capital mobilized only reached 750 billion VND, a decrease of nearly 150 billion VND compared to February 2011. Meanwhile, the Branch lent nearly 1,000 billion VND, we had to transfer capital from within the system to serve lending in Nghe An area.
Mr. Dang Xuan Hung - Director of Vinh City Agricultural Bank shared: in early 2011, our bank's total mobilized capital reached more than 1,000 billion VND, by June 2011, the deposit source was only 900 billion VND, a decrease of more than 100 billion VND.
The reason is that capital flows to other banks with higher interest rates. Although the State Bank regulates the ceiling interest rate of 14%/year, many banks mobilize capital beyond the ceiling, causing the capital market in Vinh City to be disrupted and complicated. Vinh City Agricultural Bank strictly complies with the regulation on capital mobilization of 14%/year, many customers with large deposit balances have been lured by commercial banks with higher interest rates.
Race to raise capital beyond interest rate ceiling
Many banks, although not lacking in resources, still participate in the race to raise interest rates above the ceiling of 14%/year, which, according to the leaders, is to retain customers before they intend to switch to another bank. To cover the difference between the 14%/year as prescribed and the 18%, 19%/year in reality, each bank has its own way to legalize it.
There are banks that pay 14% interest at the end of the term, and the remaining 4% will be paid directly when the customer comes to deposit money. At another joint stock commercial bank in Vinh city, when customers come to deposit money, instead of the traditional savings book as before, this bank now uses a capital mobilization contract. Although the interest rate is agreed at 18.5%/year, the contract between the bank and the customer only states 14%/year, and the interest rate difference is specifically calculated in a sub-commitment attached to the capital mobilization contract, but this commitment is only kept at the bank, the customer is not allowed to keep it...
Talking to us, Mr. Phan Huu Phung - Director of Saigon Commercial Joint Stock Bank Branch said that no bank wants to mobilize high interest rates, because high mobilization increases capital costs, but not mobilizing high will lose customers. Therefore, banks must have customer care policies to attract capital.
Faced with the situation of increasingly high inflation and unattractive interest rates, people with money want to invest in other channels such as gold, real estate, etc. that are more profitable. In addition, banks always have to make efforts to ensure assigned targets. The above reasons make the race to mobilize capital unending.
According to experts, in the context of the State Bank implementing a tight monetary policy to limit lending, this capital mobilization race is considered unusual.
(continued)
Quynh Lan
