Banks face... "cash inventory"

(Baonghean) -After a long time of businesses facing inventory, now, as predicted, banks are also facing... inventory money. The story sounds strange when the market often hears about businesses having difficulty accessing capital, not about unsold money. However, that is the reality that is happening.

Currently, in the credit market, many banks have excess capital and want to lend, but in general, the capital absorption capacity of enterprises is very poor. Healthy enterprises are not eager and hesitant to borrow capital even though banks have lowered interest rates and increased promotions; and for enterprises with poor financial situations, banks do not dare to lend, afraid of falling into the situation of "abandoning their children". Therefore, it is very difficult for banks to push credit out. Currently, many banks are stuck with capital and have to release it, but where to release it when the Association of Small and Medium Enterprises in the whole province has 5,000 enterprises, but most of them are small enterprises with an average labor force of 5-8 people/enterprise, mainly services and with over 50% being in the weak group. Statistical reports from the State Bank branch in the province show that since the beginning of the year, the situation of capital mobilization growth being higher than outstanding loans is quite worrying. In the first quarter of 2013, mobilization continued to increase, reaching 48,400 billion VND, up 9.7% compared to the beginning of the year, while lending increased only slightly by 1.3% (reaching 78,340 billion VND).

Loan interest rates have decreased but businesses still find it difficult to absorb capital.
In photo: Production at Hai Chau Shipbuilding Company Limited.

Mr. Vo Minh Quan - Director of Naconex Nghe An Joint Stock Company, Chairman of the Vinh City Small and Medium Enterprises Association, said: “Unlike before, now, businesses with potential and fair repayment are taken care of very thoughtfully by banks. Our business has many banks inviting us to borrow capital, but with the current difficult production and business situation, we are also very cautious in borrowing. Because in addition to bank loan interest, there are many other costs such as labor wages, taxes, premises... if we are not careful in borrowing (even with low interest rates), it will be an additional burden. Currently, our business has borrowed about 60 billion VND of bank capital and mobilized other sources. With this loan, we have to pay about 7 billion VND of interest every year, in addition to other expenses to maintain jobs for 200 workers. In difficult production conditions, sales in the first 3 months of the year continued to decrease by about 30% compared to the same period, how much to borrow and what production plan to maintain are issues that we have to consider. We always have to calculate carefully".

Similarly, at Hung Phat Production and Trading Joint Stock Company (Nghi Phu Industrial Park), Mr. Nguyen Van Sinh - Director of the Company said: “Borrowing capital is not difficult at present, we have just borrowed a few billion VND from Vietcombank Trung Do branch with an interest rate of 11.5%/year. In the past, there were very few large projects that could not be implemented, the enterprise only had a few small projects; the first quarter revenue reached 11 billion VND, equal to 90% of the plan. The output is difficult, the products are in stock, so borrowing capital is necessary but must be careful”.

At Sacombank Nghe An branch, by the end of March, mobilization reached 630 billion VND, an increase of 80 billion VND compared to the beginning of the year, but lending decreased by 30 billion VND compared to the beginning of the year. At SHB Bank branch, mobilization increased steadily, by March 31 it was 1,465 billion VND, an increase of 300 billion VND, but outstanding loans only reached 760 billion VND, an increase of 30 billion VND, equivalent to 3% compared to the beginning of the year. An officer of SHB Bank branch said that since the beginning of the year, there has been almost no new outstanding loans, the reason is that lending interest rates at SHB are high, averaging 14-14.5%/year. There are no customers with good finances, but there are customers with bad finances who come to borrow to pay off debts, transfer bad debts from one bank to another, but the bank refuses.

The imbalance between mobilization and lending in the first 3 months of 2013 occurred not only in joint stock banks but also in many commercial banks. At Vietcombank Vinh branch, as of March 21, 2013, the total mobilized capital amounted to VND5,413 billion, but the outstanding loan balance was VND2,234 billion. A leader of a joint stock bank shared: Previously, after mobilization, the bank pushed it through the credit channel, in addition to deducting a percentage to set up provisions and mandatory reserves along with capital safety obligations as prescribed before lending, the remaining capital was sold on the interbank market. But now, with the strict regulations in Circular 21, this door is almost closed. Banks with excess capital do not buy, while weaker banks that can buy capital are required by the circular to set up too large provisions.

Thus, credit growth is slow, some banks even have negative growth, capital transactions on the interbank market are difficult, and buying government bonds has negligible profits. Faced with the current situation of excess available capital, banks choose the solution of "discharging money" by reducing mobilization interest rates, releasing some resources to avoid pressure on capital costs. Although on March 25, 2013, the State Bank announced the ceiling on VND deposit interest rates with terms under 12 months to 7.5%/year from 8%/year, 2 days before, Vietcombank and some units had reduced the interest rate for this term to 7.5%/year.

Lowering deposit interest rates to release resources and thereby balance and reduce lending interest rates is the way banks do it. However, according to feedback, lending interest rates of banks need to be reduced further for businesses to be able to operate. And, reducing lending interest rates to clear cash flow is important, but besides that, the State needs to pay attention to tax policies as well as solutions to push inventory,... to support and give more strength to businesses, and revive the economy.

Article and photos: Thu Huyen