Banks cut interest rates on loans for exporters

Joint-stock banks have begun to offer loans to import and export businesses at preferential interest rates, following a period of inactivity in the financial services market.

At a time when the foreign exchange market is stabilising, several banks have made the move to accommodate growing demand from businesses.

The Government’s prime interest rate of 14 per cent per year, which has remained stable, was another factor behind the banks’ decision to offer better rates.

The State Bank of Viet Nam’s decision to pay 3.6 per cent per year for banks’ compulsory reserves in dong, up from 1.2 per cent, also had an impact on their decision to lower rates.

Truong Van Phuoc, general director of Viet Nam Import and Export Commercial Bank (Eximbank), said the bank had decided to raise the loan limit from VND2 trillion (US$119.8 million) to VND5 trillion ($299.58 million) to farm produce export companies.

Eximbank has also slashed lending rates to 6.6 per cent per year from the previous 8.4 per cent for exporters who have already signed contracts.

For importers who want to borrow US dollar loans with terms of less than six months, the lending rate is 6.6 per cent per year.

Recently, Asia Commercial Bank (ACB) raised its lending limit to $50 million from $30 million to support exports.

The bank has announced it will lend to four main export industries – seafood, woodwork, rice and rubber.

The Bank for Agriculture and Rural Development of Viet Nam (Agribank) has just announced an additional grant of VND3 trillion ($179.7 million) to its branches nationwide to promote coffee purchases, processing and exports.

Borrowers of the loans are companies that buy and process coffee on the condition that they meet Agribank’s requirements for borrowers and additional requirements, including export contracts, payments made via banks, and commitment to sell foreign currencies to Agribank, among others.

From the beginning of this year, Agribank has provided more than VND1 trillion ($59.9 million) in loans to promote buying and processing tra and basa catfish for exports; VND10 trillion ($599.16 million) to boost purchase of rice harvested in the summer-autumn crop for exports; and more than VND4 trillion ($239.7 million) for import of fertilizer and another VND5 trillion ($299.58 million) in preferential loans for exporters.

Viet Nam Technological and Commercial Joint Stock Bank (Techcombank) said it would set apart between VND4–VND5 trillion for lending to businesses involved in buying and processing rice, coffee, cassava and cashews for export at a preferential interest rate.

Techcombank has also cut its lending interest rate by 0.5-1 percentage points and by 2-2.5 percentage points on the Vietnamese dong and US dollar, respectively.

Tran Bac Ha, chairman of Bank for Investment and Development of Viet Nam (BIDV), said several banks were offering loans to import and export firms in an effort to boost economic development while still complying with the Government’s tightened credit policy.

Le Quoc An, chairman of Viet Nam Garment and Textile Association, said this was beneficial for textile enterprises in particular because most were in dire need of capital.

Banks Set New Interest Rates

Bank managers in Indonesia have agreed on a ceiling for interest rates, effective Monday last week. The ceiling is calculated at 12.5 percent for three-month deposits, and 12 percent for 6 or 12-month deposits.
National Banking Association chairman, Sigit Pramono, told Tempo yesterday that the step was taken to “control banks from going wild”. He said the competition between banks to obtain capita in order to maintain liquidity is getting more difficult and unhealthy, because it can cause an imbalance between capital funds and loan distribution.
He said the increase in the Bank Indonesia rate, was one of the reasons why banks are raising their own interest rates. Pressures caused by inflation and worsening bank liquidity problems helped boost savings.
Capital from third parties remains minimal. Loans disbursed have reached Rp 1.148.4 trillion, while bank capital stands at Rp 1.155.4 trillion. “It’s getting more difficult for banks to disburse their loans because of the low inflow of capital from third parties,” Sigit said.

Bank Indonesia deputy-governor, Budi Rochadi confirmed the agreement between banks, saying, ”Bank Indonesia does not have the right to manage market interest rates. That’s up to the banks.”
Lippo Bank treasury director, Gotfried Tampubolon, refused to comment, however he stressed that if the high interest rates continue, it is the bank customers who will benefit while the banks “will face difficulties.”
Bank Indonesia’s Research and Management director, Halim Alamsyah, said banks must review their credit plans and adjust them to their capacity to garner capital.
Until last July, the savings and loans ratio was 78 – 79 percent, with less than 4 percent in non-performing loans.

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Loan interest rate, reserve requirement ratio lowered

China's central bank said on Monday it would reduce the benchmark loan interest rate and the reserve requirement ratio for commercial banks to ensure a steady and rapid economic growth.

The benchmark interest rate for one year yuan denominated loans will be adjusted down 0.27 percentage points from Tuesday, its first downward movement since October 2004.
In addition, the ratio of deposit lenders are required to set aside will be down 1 percentage point from September 25, the People's Bank of China said.

However, the country's major lenders will be exempt from the reserve requirement ratio adjustment. They include the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, the Bank of Communications and the Postal Savings Bank of China.

The reserve requirement ratio would be reduced by 2 percentage points for local financing institutions in areas badly hit by the May 12 Wenchuan earthquake, the central bank said.

After adjustment, the interest rate for one-year loans in the Chinese currency will be 7.20 percent. The overall reserve requirement ratio will be 16.5 percent, down from a record 17.5 percent after five consecutive increases this year.

The move reflected the government's concern over the slowing economy and was a result of long-time consideration, said Zhuang Jian, a senior economist with the Asian Development Bank Resident Mission in China.

"It showed the government was eager to maintain the economic growth as enterprises faced difficulties, especially funding strain. The eased inflationary pressure also provided more room and time for the adjustment."

China reported last week its consumer price index in August rose 4.9 percent from a year ago, down from the 12-year high of 8.7 percent in February and the lowest since July 2007.
There had been long debate in China on whether the government should loosen its tight monetary policy as its economy slowed, Zhuang said.

The country started to adopt a tight monetary policy from the second half of 2007 to curb inflation. Its gross domestic output posted a year-on-year growth of 10.4 percent in the first half of 2008, 1.8 percentage points lower from the same period last year.

"The news would bolster investor confidence in China's economy and somewhat offset the impact of the bad news in the US," Tang Min, the China Development Research Foundation deputy secretary, said.

He was referring to the Sunday reports that US investment bank Lehman Brothers had filed for bankruptcy protection while its rival Merrill Lynch agreed to be taken over.

"The central bank gave a big present," said Tang. "The lending rate was cut by 1 percentage point this time, much larger than the usual 0.5 or 0.25 percentage points in previous adjustments."

However, Tang said officials still intended to keep liquidity in check as the deposit interest rate would stay the same.

Zhuang said China was prudent in the policy adjustment. "The government still placed priority on controlling inflation as the deposit reserve ratio was not lowered for the top-four lenders."

That action would also give small- and mid-sized banks an advantage in extending loans and benefit small enterprises, which were the main customers of those banks and had suffered most in the past quarters, he said.

China's gross domestic product had decelerated for four consecutive quarters through June. Its export growth slowed 5.3 percentage points year on year to 22.4 percent in the first eight months of this year.

The central bank said its move was to "solve prominent problems in the current economic operation, implement the principle of giving different policies for different needs and optimizing the economic structure, and to ensure a steady, rapid and sustained development.

Payday loans: Should interest rates be capped

California isn’t one of those states. A bill here died in committee last session, and sponsor Assemblyman Dave Jones, D-Sacramento, hasn’t decided yet whether he will try again next year.

In 2006, Congress capped rates on payday loans, as they are commonly known, made to military personnel and their families. Authorities limited such loans to 36 percent, worried that the mounting debt of service men and women put national security at risk.

Without that cap, a loan that is not paid off at the end of two weeks can potentially generate fees that translate to triple-digit interest rates.

Asked if he favored an interest rate cap, local West Coast Cash customer Ricky Squires, 60, initially said yes.

But when told the industry says that would drive them out of business, Squires backed away.

“It’s probably a good idea, but if it puts them out of business, I don’t think they should do it,” he said.

Over the last two years, 15 states and the District of Columbia have limited interest on payday loans to civilians. They are Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont and West Virginia.

In Arizona and Ohio, the caps have been challenged, and voters will have an opportunity to weigh in on whether the laws should stand.

HURTING THE POOR?

Critics of payday loans say they are money pits that prey on the poor.

“These loans totally trap people in a cycle of debt that they can’t get out of,” said Ginna Green, a spokeswoman for the nonprofit Center for Responsible Lending.

The Community Financial Services Association of America, a national payday loan industry trade group, argues that fees for the initial loan are reasonable, and people who pay on time don’t get into trouble.

Under current law, Californians pay a maximum fee of $17.65 per $100 borrowed for two weeks. That translates into annual interest of 460 percent.

It’s that annual figure that troubles opponents.

“Borrowers don’t pay them off on time,” Green said. “They carry them over, and the debt gets bigger and bigger. The industry says it’s about choice, but nobody chooses to owe $3,000 on a $300 loan.”

An average payday loan in California is 16 to 18 days, according to the California Financial Service Providers Association, the state’s payday loan industry trade group.

A WAY TO MANAGE

It’s easy for middle class bank customers to dismiss payday loans, but they provide a desperately needed service for low-income workers who don’t have a lot of options, said Mark Thomson, director of government relations and compliance officer for Moneytree.

“You have to realize that our relationship with debt is different,” said Thomson, who serves on the state trade association’s legislative committee. “You or I walk into a Best Buy, see a $1,700 flat-screen TV, and decide we don’t want to finance it. Without that loan, nothing changes in our daily life.

“For most of our customers, some adverse event is going to happen. They are going to bounce a check, or their utilities are going to get shut off, or they have to get a car out of the shop so they can get to work.

“There’s already something about to happen to them, and they’re trying to find the cheapest way they can to manage it.”

Payday loans are one way to do that. For some, it’s the only way, because they don’t have good credit and can’t access a credit card or a loan from a traditional bank, Thomson said.

If payday lenders go out of business, subprime borrowers will have nowhere to turn, and with a 36 percent cap, California’s payday loan industry will die, Thomson said.

Profit margins are low already, he insisted. Fees are just high enough to cover loan defaults and the cost of doing business.

Consumer Credit Counseling Service of Kern and Tulare Counties is a nonprofit organization that helps borrowers get out of debt and offers budget management classes.

CCCS doesn’t have an official position on capping payday loan interest rates, but it advises clients not to borrow from payday lenders, said president and chief executive Katy Hudson.