Home » Banking & Finance » Capital flows in, out and around, banks rolls over, lending to each other

The Capital flows in, out and around, banks rolls over, lending to each otherfinance reports of the banks show that the amount of capital pumped into the national economy yields to the capital in the transactions on the interbank market and the capital injected in other financial investments.

GP Bank earlier this week announced it pays 13 percent per annum in interest rates for a 13 month term deposit, while the interest rate for 12 month term deposit has been raised to 12.5 percent.

Prior to that, ACB, Sacombank, VietBank, Bac A Bank, Dai A Bank all had also raised the interest rates for long term deposits.

Explaining the decision to raise deposit interest rates, bankers said they try to encourage long term deposits in order to balance their capital structure. Though banks’ capital has become more profuse, they still lack long term capital because depositors prefer short term depositing.

However, experts believe that the explanation does not show the actual reason of the banks’ move. Nguyen Dai Lai, a well-known finance specialist, said this is a trick played by some banks to dodge the current laws, which stipulate that banks must not pay more than nine percent per annum for short term deposits.

This is understood that banks still can pay higher than 9 percent for long term deposits. However, Lai said that no one can say for sure if banks use the long term capital mobilized at high interest rates for long term loans.

“Once the capital gets in the banks, they would have the right to decide what to do with the capital – provide short or long term loans,” Lai explained.

“It may happen that banks mobilize long term capital just to improve the liquidity,” he said, adding that though the capital supply has been improved, a lot of banks still seriously lack capital.

Former Deputy Chair of the National Finance Supervision Council Le Xuan Nghia has also noted that long term capital is not favored now.

Depositors do not want to make long term deposits, because they fear the interest rates would increase in the future in accordance with the high inflation. Banks also keep hesitant to mobilize long term capital because of the weak demand. Especially, businesses, which suffer the constant anxiety about the big inventories, dare not borrow long term capital now to scale up their business.

Therefore, Nghia said banks have raised deposit interest rates not because they are pushing up the lending. Some small banks, weak in liquidity, have to pay high to attract more capital. This has forced bigger banks to follow the move in order to retain depositors, though they do not lack capital for lending.

By August 20, the outstanding loans had increased by 1.4 percent only, while the total deposits at banks had increased by 11.23 percent in comparison with December 31, 2011, according to the Ministry of Planning and Investment.

The figures show that capital keeps flowing into banks, while the capital pumped into the national economy has not seen any considerable improvement. Where has the capital gone to, then?

Lai has noted that while the reports show the low credit growth rate of the banking system, the total outstanding loans of the national economy still remains at over 120 percent of GDP, which shows that a high proportion of the loans have been rolled over.

This means that banks provide new loans to clients, who then use the loans to pay the old debts. With this method, banks’ bad debts can be cleared on books, but in fact, these remain the bad debts.

Besides, banks also use the mobilized capital for non-credit investment activities, such as buying bonds.

“A lot of credit institutions now operate like finance companies,” Lai said.


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