VietNamNet Bridge – Big banks have restricted lending and set up new strict rules for the interbank market, leaving small banks in thirst for capital, which is believed to do harm to the market.

While the interest rates commercial banks pay for the deposits from the public are decreasing, the interest rates on the interbank market have been increasing dramatically. In the market, the lenders are the big banks, which can mobilize capital from different sources and have profuse capital, while the borrowers are the small banks, which need capital to improve their liquidity.

The problem is that big banks have restricted lending and have imposed stricter rules on the market, which has resulted in the fact that small banks cannot borrow money from them.

A manager of a small bank told the press that a new lending mechanism has been applied in the market over the last two weeks. Big banks request small banks to mortgage assets for the loans, or they will not disburse money.

In fact, big banks have their reasons to set up the new rules. Thoi bao Kinh te Vietnam quoted a banker as saying that he has become anxious when another bank, which borrowed money from him, could not pay debts on schedule. Big banks now feel worried about the debt payment capability of small banks, and they need to apply the measures to protect themselves.

“The inflation is decreasing, while most of the banks find it hard to find borrowers, and the credit growth rate is very low. Especially, the State Bank of Vietnam has been providing capital through the open market operation (OMO). I cannot understand why the interbank interest rate has been going up so sharply,” a banker said.

He went on to say that with the new rules, it is getting more difficult for banks to borrow money from other banks. In fact, some small banks have liquidity problems, but this is not the situation of the whole banking system. The State Bank of Vietnam has recently affirmed that the liquidity of the whole banking system is still safe, while there some banks facing some problems, but they will be supported by the watchdog agency.

Meanwhile, when big banks restrict the volume of oxygen to be provided to the market, analysts have warned, the market may witness the artificial capital shortage and caused worries to bankers.

“Where will the interbank market go to, if banks lose their confidence in each other?” a banker questioned, accusing big banks of going contrary to the international practice when requiring mortgaged assets and collaterals.

Analysts say that it is understandable that big banks want to apply the measures to ensure the safety for their capital. However, they say the banks should follow the legal framework and the international practice which has existed for the last many years, and that the interbank market’s rules cannot be damaged just by the rules set up by its several members.

Small bankers have complained that when the single interest rate of 14 percent is applied by all banks (the ceiling deposit interest rate set up by the central bank is 14 percent per annum), they find it more difficult to mobilize capital, because high interest rate – the only weapon for them to attract capital – has been stripped.

Big banks have bigger advantages in mobilizing capital from the public with their prestige. They can also mobilize capital at low costs from the demand deposits from state owned economic groups and general corporations. The interbank market is the place where capital is transferred from the banks with profuse capital to the ones that lack capital, and the function of the market should not be hindered by any rules set up by some of its members.

Source: TBKTVN