JOURNALIST: - Sir, at the end of the year, liquidity in the banking system often carries high stress, so why is this year any different?
Dr. NGUYEN TRI HIEU: - At the end of the year, pressure on liquidity in the banking system usually increases due to high demand for capital. Accordingly, interest rates in Market 1 and 2 also fluctuate in an upward direction. However, this year, banks have plenty of liquidity and the State Bank of Vietnam has not intervened in the open market for many months. Interbank Offered Rate has continuously maintained at the lowest level in the past two years. Abundant liquidity stems from two reasons. First, because the State Bank of Vietnam has three times reduced operating interest rates to support liquidity for credit institutions and reduced cost of borrowing capital for enterprises and the people. Second, banks cannot lend much while mobilized capital is still good, reflected in the deposit growth rate in the past nine months which is higher than loan growth.
This year, due to the Covid-19 pandemic and slowed economic growth, the demand for loans is not high, so it is forecast that credit growth for the whole year will also be low. In the last nine months, credit growth was 6.09%, and the forecast for the whole year is only at about 8%. Hence, with the demand for credit not being high, the liquidity in the banking system in the last months of this year will not be as stressful as in previous years.
- Sir, the difficulty in credit growth has made many banks shift to offering government bonds and corporate bonds. What is your opinion on this trend?
- Currently, banks are moving capital to more viable investment areas. With the government bond channel, banks that invest in this are also suitable in the context of excess capital, because although government bond interest rate is currently very low, liquidity is very high. Government bond risk coefficient is zero, which means this investment channel is very safe. When the demand for capital in the economy increases, banks can sell government bonds to switch to lending in other economic sectors. As for bank investment in corporate bonds, that part is added to outstanding balance. This is also the ability to make credit growth in some banks in the third quarter at a rather high level compared to the industry average.
Looking at banks around the world, shifting to government bonds is an option when capital is surplus because this is the safest type of investment in the country and has high liquidity. In addition, banks also invest in other types of assets such as securities, shares, and enterprise stocks. However, investment in enterprise stocks is limited, and only for investment in securities bought and resold, not in long term buying like Vietnamese banks buy corporate bonds.
I think that the current investment by banks in corporate bonds is risky, even though they buy corporate bonds or provide loans, they analyse the financial situation of issuers to make any decisions. In addition, according to State Bank of Vietnam regulations, purchase of corporate bonds is considered as loan and must be added to the credit balance. The problem is that corporate bonds have relatively high interest rates for long term loans, which means that risk also increases compared to short term credit. At the same time, it is not excluded that some banks buy corporate bonds to reverse debts. That is, they buy corporate bonds of enterprises and enterprises use that money to repay old debts.
Debt rollover is a very common phenomenon, which can be aimed at two purposes of turning old debt into good debt, and restructure the debt in enterprises. If the interest rate on loans was high in the past, businesses would issue corporate bonds for banks to buy with interest rates that might be lower than the interest rates they borrowed on before. This is a move to restructure debt. For these purposes, I agree with debt restructuring for healthy businesses, because it is a legitimate need. However, if a bank buys corporate bonds to turn bad debt into good debt it is against regulations, and it is necessary to have inspection and supervision from regulators to avoid risks. From now until the end of the year, banks can still pour more money into investment channels, including corporate bonds.
- Sir, at present, many businesses are being impacted by the current disease, and many businesses, especially SMEs, do not have access to capital. Banks have excess capital but cannot lend below certain standards. Do you see any solution to this problem?
- Credit support for businesses to overcome the impact of the Covid-19 pandemic is a problem. However, support packages have not met the needs of a majority of businesses, especially SMEs, because the support capital only comes to businesses that are familiar with the concerned bank. Therefore, in order to get support, there must be a more suitable solution. I have suggested building a credit line to bring capital to businesses during this difficult time.
On credit union, I have shared details with Saigon Investment in a previous article. It is necessary to have a solution to take advantage of the existing money to help businesses, use credit union for unsecured loans, redesign lending standards, and lend under credit guarantee mechanism of national credit fund. Credit complexes are aimed at businesses that are facing difficulties, but if they have capital, they can maintain operations and have enough strength to contribute to economic recovery in the coming year.
- Thank you very much!