Commercial banks have been told to reduce the outstanding loans to non-production sectors to 22 percent prior to June 30, and to 16 percent by the end of the year. However, small banks fear that they would fail to meet the target.
The State Bank of Vietnam in early March 2011, informed that 24 commercial banks had been found as having outstanding loans to non-production sectors, accounting for 26 percent and more of the total outstanding loans. The banks have been instructed to reduce the proportion no later than June 30. They have been trying to negotiate with borrowers to recovery debts, but despite great efforts, 22 percent of total outstanding loans remain a far-away goal for many small banks.
A chair of a small bank admitted that the targets set by the State Bank are really beyond their capacity, especially when it needs to fulfill the task during a very short time.
He said that the bank has stopped providing loans to non-production sectors since mid March, while it has been trying to negotiate with clients to recover debts before the maturity and restructure loans. However, it is very difficult to quickly reduce the proportion of the outstanding loans to non-production sectors to 22 percent prior to June 30, from the current level of 44 percent.
Other bankers also said that most of the loans given to non-production sectors are medium and long term loans. Meanwhile, banks only have three months to recover debts. They think that in this case, the central bank should give them more time to implement the task.
Some bankers have been trying to push up the lending to the production industries in an effort to reduce the proportion of outstanding loans to non-production sectors. However, this is also a difficult task, because the current overly high lending interest rates have been keeping borrowers away.
General Director of Dai A bank, Le Huy Dung also said that the bank has been trying its best to reduce the outstanding loans to non-production sectors to 22 percent, but he thinks that it is impossible to “reach the finish” prior to the end of June. After a lot of exertion, the bank’s proportion has reduced from 34 percent to 26-27 percent.
Meanwhile, Dam The Thai, Deputy General Director of HD Bank, said his bank is on the path to reduce the outstanding loans to the allowed level.
However, Dai A Bank and HD Bank are the banks which have low initial proportions of outstanding loans to non-production sectors, and it would be easier for them than other banks, which have the current proportions of 40-50 percent, to recover debts.
Analysts have pointed out that the hurry of the banks to recover debts is one of the main reasons behind the continued falls of the VN Index and the stock market in recent trading sessions.
In an effort to urge commercial banks to implement the Instruction No 1 on curbing inflation, the State Bank has released a new legal document on the control over the lending in 2011. The document said that some banks have been found as setting the credit growth rate goal at the levels higher than 20 percent for 2011, even though the State Bank has clearly stated that the credit growth rate must not be higher than 20 percent.
The State Bank has instructed the banks to reconsider their business targets for 2011, and slow down the lending to non-production sectors.
Regarding the outstanding loans to non-production sectors, the Governor of the State Bank has requested commercial banks to reduce lending and report to the Monetary Policy Department no later than July 12.
In case banks cannot reduce the proportion of outstanding loans to non-production sectors as required, the State Bank will impose the compulsory reserve ratios, which are two times higher than the normal ratios, on the banks, and will set limitations on the operation scale of the banks in the last months of 2011 and in 2012.