Official warns about liquidity shortage in 2012

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Báo Tuổi Trẻ English - 37 month(s) ago 4 readings

Liquidity shortage of the banking system will remain the biggest challenge for Vietnam’s macro-economy in 2012, said Vice Chairman Le Xuan Nghia of the National Commission for Financial Supervision.

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Speaking at the seminar on Vietnam’s economic outlook in 2012-2013 held in Hanoi on Monday, Nghia said several banks had recently pushed up their deposit interest rates to 19 percent – 20 percent, or even 21 percent, regardless of the regulatory ceiling of 14 percent.

This shows liquidity shortage at these banks, he said.

In addition, the liquidity situation is tense in the primary market, as the banks are boosting internal lending, Nghia said. Lenders are opening both loan and deposit accounts that are worth as much as VND500 trillion.

“The monetary and banking market will continue to face difficulties in liquidity and bad debts in the first months of 2012. Liquidity is the greatest challenge for the banking system,” he said.

He said the banking system should draw lessons from the South American countries which had failed to curb inflation after two years of the global economic crisis.

In these countries, people lose confidence and hesitate to deposit money, switching to investment in gold and foreign currencies. Lenders are unwilling to give out loans while borrowers are discouraged by high interest rates.

The commission’s report shows there are more potential risks in the banking system’s liquidity, given recent upheavals in the inter-bank market. For the first time in history, mortgages are required for inter-bank borrowing, while the bad debt ratio continues to rise.

According to Nghia, the system’s asset quality is worsened by high credit growth while risk management is still limited and shortcomings remain in operating monetary and interest rate policies.

In particular, bad debts of the entire banking system have risen to the current level of VND85 trillion from VND71.6 trillion as of last year’s second quarter.

The average growth of bad debts in the first half of 2011 is 7.3 percent, twice as much as the monthly average of 2010.

The ratio of bad debts on total outstanding loans has surged to 2.88 percent as of end-June 2011, and recently jumped to 3.39 percent.

However, the increases in provisions for credit risks and bad debts don’t match. The ratio of risk provisions over bad debts is on the downtrend, falling from 81.1 percent in late 2010 to 67.1 peercent as of end-June 2011.

Also, the capital adequacy ratio (CAR) tends to drop strongly, with more banks failing to satisfy the regulated CAR. As of end-June last year, 2 out of 47 banks failed to meet the regulated CAR, but at the end of the third quarter, the figure rose to 17 out of 42 banks.

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