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Friday, September 30, 2022

Bottlenecks to slow down loan disbursement

By Thuy Le

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A financial aid package with an interest rate discount of 2 percentage points for businesses has been disbursed far slower than expected. Why is it seeing such few takers and what should be done to accelerate the implementation process?

Difficulty in identifying suitable takers

To date, loans taken out under the interest subsidy package have totaled just VND4.1 trillion, benefiting only 550 customers three months after implementation. The amount of interest given was almost VND1.02 billion, while the outstanding credit stood at VND3,966 billion, a representative of the State Bank of Vietnam (SBV) said at a meeting with Deputy Prime Minister Le Minh Khai on August 17, 2022.

According to the plan, it is estimated that banks will spend around VND800 trillion on outstanding credits in 2022 with an interest amount of around VND16,035 billion. Meanwhile, there are only about four months left until the end of the year. With such slow disbursement, completing the set target this year seems very challenging.

The outstanding credits in 2023 are estimated at around VND1,200 trillion, while the amount of interest is nearly VND24 trillion. The outstanding credit will be added to next year’s amount in case it is not used up this year.

The SBV will consider adjusting the interest rate discount in each bank on the principle of transferring from banks without the desire to use up the subsidies to the banks in need of additional subsidies from the third quarter of next year.

It is implied that many banks do not seem to be in a hurry to implement this financial aid program at the initial stage, especially when the current guidelines and conditions are still quite ambiguous. However, banks will possibly speed up the implementation at later stages as they do not want their earmarked budgets transferred to another bank.

In 2009, the outstanding credit scale of the interest subsidy package accounted for 24% of the figure of the whole industry. Currently, with the VND40 trillion-financial aid package in 2022 and 2023, the outstanding credit scale with the interest discount just accounts for 9%/year (an average of VND1 million billion/total outstanding credits of the whole industry of VND11,400 trillion each year, as of June 30, 2022). Due to such a lower proportion, banks have to choose the beneficiaries carefully.

According to the regulations, the beneficiaries of the interest rate subsidy, including enterprises, cooperatives and business households with the purpose of borrowing capital, belong to two main groups.

The first group comprises the aviation, transportation and warehousing sectors; accommodation, catering and tourism sectors; education; agriculture, forestry and fishery industry; manufacturing and processing industry; software publishing, computer programming and related activities, information service activities; construction activities directly serving these economic sectors, except construction activities for real estate business purposes.

The other group includes enterprises conducting projects of social housing for low-income and aging apartment building renovation (the list of projects is updated on the e-portal of the Ministry of Construction).

However, many banks find it difficult to identify the beneficiaries of the subsidy as many business households as a key target of the package fail to upgrade their status into companies as required.

Other contributory causes

Another main reason which has been the talk of the town recently is that many banks have reached their credit growth limit and run out of loans and are awaiting their credit growth quota to loosen. At an online conference at the end of May, many banks proposed raising the credit growth limit to speed up the implementation of the financial aid program.

At the conference, several banks estimated the number of eligible beneficiaries and the scale of the loans under the interest subsidy package. Vietcombank will have over 300,000 customers with outstanding credits accounting for approximately 30% of the total outstanding credits of this bank. Meanwhile, VietinBank estimated the outstanding credits under this aid package at around 30% of the total outstanding credits of the bank. Additionally, BIDV will have some 10,000 customers eligible for the financial aid package and this number is predicted to increase this year and the next.

Banks have already identified customers eligible for this interest subsidy package since the program was launched.

The total outstanding credits of the whole industry have risen dramatically since the first months of the year, causing many banks to reach their allocated credit growth limit before the implementation of the program. Thus, many customers eligible for the interest rate subsidy already borrowed the loans from the beginning of the year.

The VND17 trillion-financial aid package in 2009 left many problems, causing the SBV and the Ministry of Finance to control this year’s aid program more closely. Hence, it has raised serious concerns among credit institutions in implementing this financial aid program. They seem worried about similar problems and their accountability for unsuitable beneficiaries.

Last but not least, many banks have faced difficulties in their capital mobilization when the deposit interest rate keeps going up, leading to an increase in the borrowing cost. They tend to prioritize the segment with higher interest rates. When the demand for loans is still high, banks have more opportunities to choose their customers. Thus, the capital flow for interest rate support programs is not enough for the implementation of the program.

Optimal solutions to problems

The Governor of the State Bank of Vietnam required banks to simplify their lending procedures for this financial aid package. More importantly, there should be a synchronization of procedures, loan requirements, and operations of different banks.

At the meeting on August 17, Deputy Prime Minister Le Minh Khai requested the relevant agencies to review the regulations related to the loan conditions and beneficiaries to promptly come up with appropriate solutions and adjustments.

Additionally, some interdisciplinary taskforces with the participation of relevant departments would be established to oversee the implementation of the package and propose measures to handle difficulties faced by banks.

Another solution to the current problem is to extend the credit growth limit for the banks, especially for those which already earmarked a large loan balance this year. At the same time, the SBV should also evaluate the banks’ implementation of the package and ensure they achieve the registered targets.

The Deputy Prime Minister requested the relevant agencies to review the regulations related to the loan conditions and beneficiaries to promptly come up with appropriate solutions and adjustments. According to the applicable regulations, customers with bad debts or their bad debt restructured won’t be eligible for this aid package. However, these businesses really need capital to recover in the new normal due to the impact of the Covid pandemic.

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