The proposal for banks to lower 50 percent of loan interest, loosen the conditions for granting credits of the Hochiminh City Real Estate Association (HoREA) made many leaders of commercial banks mentally concerned, even feeling helpless.
In the petition just submitted to the prime minister, HoREA said that the economy was still in a wartime situation, so if banks still applied lending conditions like the Law on Credit Institutions, it would be very difficult for both banks and businesses.
Therefore, the Association said that it was necessary to set a specific credit standard, specifically applied for 2020, such as the 30 percent to 50 percent interest rate reduction; reducing 50 percent of loan security value; loosening credit lines with borrowers.
The story of banks businesses that had been peaceful in recent years had suddenly become hot again when many companies, not only in real estate, simultaneously called for difficulties in accessing capital, demanding lower interest rates.
However, it was different from the previous period that when the lending interest rate soared to 20 percent to 30%, and many sympathetic views were tilted toward businesses, then, the story of approaching capital and lowering interest rates was viewed in a multidimensional way because of many lessons.
In the period before 2010, real estate credit increased sharply, sometimes up to 40%. The ease of the banking industry with securities and real estate was the reason for the real estate market collapse and billions of dollars of bad debt that had so far been resolved. If the credit standard were lowered, the economy would be in the risk of falling back into the footsteps.
However, what made banks most concerned was that the capital that supported businesses was completely commercial credit, not from the budget. Banks must mobilise capital from individuals for businesses to borrow. The interest that had to be paid to the depositors could not be delayed and could not be reduced. Banks also could not lower deposit rates as deposits to the system were declining. Keeping deposit interest rates unchanged but reducing interest rates by 50 percent meant that loan interest was not enough for capital mobilisation. Thus, where could the bank find sources to cover losses?
Not to mention, the proposals of HoREA exceeded the authority of SBV, even the jurisdiction of the government. Lending standards, which required amending a series of related laws, would need to be passed by the National Assembly. Without changing the law, certainly, no banks would dare to break the lending barrier. The criminal verdicts involving bank officials for lending improperly, causing bad debts, loss of capital the bank, were valuable lessons. Therefore, the most profound experience that banks drew after many crises was to ensure operational safety.
In a recent statement, the Governor of SBV thoroughly asked banks to support maximumly customers who were affected by the disease, but not to lower credit standards, not to loosen lending conditions. This was a factor in creating a healthy and long-term foundation for the banking system and also a premiss to ensure macroeconomic stability for the whole economy. Because lowering credit standards, even only in one year, could cause bad debt to explode quickly and the economy had to take decades to handle. In fact, the bad debt ratio in Q1/2020 increased rapidly, forcing banks to increase by 50 percent to 70 percent of the provision.
Obviously, lowering credit standards was an impossible proposal; interest rates were currently not the biggest barrier of businesses. However, HoREA’s proposal, as well as the reply of many enterprises over the past time about difficulties in accessing the 300 trillion dong support package, also showed that the enterprises’ resilience was weakening, and policies to support businesses needed to be deployed faster.
It was a fact that commercial banks currently supported business, but their branches were under pressure on revenue and profit targets. Thus, they still seemed to delay the debt structure for businesses, or to slowly reduce lending rates. Besides, the procedure for capital disbursement was always complicated.
Hence, even when it was not possible to reduce 50 percent lending interest rate and to lower credit standards, it was necessary to reduce administrative procedures soon, thereby accelerate debt structure for businesses according to Circular 01/TT-NHNN. With tools such as Open market operation (OMO), refinancing, rediscounting, compulsory reserves, SBV must also quickly take part in, creating cheap capital to help commercial banks support the economy.
Naturally, support for corporate recovery could not just depend on banks. Never before, the story of fiscal and monetary coordination had been as urgent as it was these days. In order to activate the economy, firstly, public investment had to be deployed faster, tax and social support packages should also be conducted urgently. On the other hand, businesses must also consider carefully when borrowing capital, because, though cheap loan, they still had to pay principal and interest. Thus, companies should loan only when there was a feasible project.
