Commercial banks start to loosen purse strings   Transactions conducted at the head office of Vietcombank in Ha Noi. Despite mounting bad debt levels, commercial banks reportedly remain secure. — VNA/VNS Photo Tran Viet HA NOI (VNS) — After declining during the first five months of the year, lending by the nation's commercial banks began to expand in June and has now risen 3.3 per cent over the same period last year, the deputy director of the State Bank of Viet Nam's monetary policy department, Do Thi Nhung, told a meeting in Ha Noi yesterday. Lending was largely concentrating in a number of prioritised sectors, with loans to exporters representing 10.76 per cent of new loans, followed by lending for enterprises in rural areas and support industries. Financing for small- and medium-sized enterprises remained limited due to these firms' low adaptability to bad economic conditions, including weak demand and a frozen real estate market. However, Nhung said, the State Bank has asked the Ministry of Finance to develop guarantee policies to enable SMEs to borrow capital, and has asked the Ministry of Planning and Investment to establish a SME development fund. The Ministry of Industry and Trade has also been asked to help businesses reduce unsold inventory levels, including consumer loan programmes and other policies to stimulate demand. Despite mounting bad debt levels, Nhung said, commercial banks remained secure, with liquidity "basically assured and improved" and the foreign exchange market "relatively stable." Inflation has been brought under control, allowing interest rates to be slashed by 5 per cent sooner than had been expected, she said, noting that the percentage of outstanding loans carrying interest rates of less than 15 per cent, a cap stipulated by the central bank in mid-July, has climbed to 90 per cent. Nhung said the State Bank would continue to support credit institutions with liquidity issues and supervise their performance. It would also work with lenders to resolve bad debt issues. National Advisory Council for Monetary Policies member Le Xuan Nghia said that current caps on deposit interest rates needed to be lifted in order for banks to avoid legal risks. Although the interest rate on dong deposits was capped by the State Bank at 9 per cent, many banks had illegally raised rates to 11-13 per cent to attract needed capital. "If we remove the ceiling rate, there will be greater risks of higher interest rates, but they won't be able to increase immoderately since they will be determined by supply and demand on the market," Nghia said. Nghia suggested that the State Bank should take no responsibility for protecting banks facing bankruptcy. "Customers must decide for themselves whether to deposit money at good banks with moderate interest rates, or at weak ones which are forced to offer interest rates at sky-high levels," he said. — VNS