FINANCE STIMULUS - Banks agree to lend billions of dollars under government interest rate subsidisation scheme

FINANCE STIMULUS - Banks agree to lend billions of dollars under government interest rate subsidisation scheme





Three large banks, Bank for Investment and Development of Vietnam (Bidv), Vietnam Bank for Foreign Trade (Vietcombank), Industrial and Commercial Bank of Vietnam (Vietinbank), announced that they will offer 70 trillion dong each under the government's interest rate subsidisation.

Meanwhile, the lending amount of Bank for Agriculture and Rural Development of Vietnam (Agribank) under the government's interest rate subsidisation will surely be larger, possibly up to 100 trillion dong, because its large number of clients being farmers and agricultural businesses.

Among commercial joint stock banks, Vietnam Technological and Commercial Bank (Techcombank) planned to lend 50 trillion dong, Asia Commercial Bank (ACB) 35 trillion dong, Vietnam International Bank (VIB) 25 trillion dong. Other commercial joint stock banks also scheduled to offer loans of some 10-30 trillion dong. It is estimated that some 600 trillion dong worth of interest-rate-subsidised loans will be injected into the economy.

With such a large estimated lending amount, the government will have to subsidise about 24 trillion dong while the government scheduled an amount of only 17 trillion dong in planned eight-month period.

However, banks say they are well aware that the most important part of the government's interest rate subsidisation is extending loans to the right business.

ACB said that it would set aside loans primarily for export activities and short-term trade support with the lowest interest rate of only 1.2% a year.

Ly Xuan Hai, ACB's general director, expected that this would help increase outstanding loans for export, bringing its year-on-year credit growth to some 70%.

The State Bank of Vietnam (SBV) in Circular 02 dated 3 February 2009 regulating interest rate subsidisation in details allowed banks to fully satisfy borrowing demand of eligible businesses. After that, upon collecting interest, the central bank will transfer subsidised interest to banks based on banks' lending reports. With such a statute, there is no barrier for interest-rate-subsidised loans. Banks have the right to decide and take responsibility for loans.

Most of banks and businesses questioned why the government chooses the subsidised interest rate of 4%. In 2009, total credit to the economy through the banking channel is estimated at 1,200 trillion dong a year. Thus, the government's subsidy amount of 17 trillion dong will create some over 50% of cheap capital of the above total amount. The remaining credit will follow the normal lending mechanism. SET