Fraud feared in interest rate support program

March 13, 2009

LookAtVietnam – The Government’s subsidized lending program has heaped praise from the corporate sector but bankers have expressed concern that some might profiteer from loopholes in this stimulus program.

An expert warned that the Vietnamese dong had fallen about 10% against the U.S. dollar since January last year, and that it would lose value by a further 5% this year.

The program allows corporate borrowers to take four percentage points off banks’ normal lending rates so that they can have cheap funds to revitalize trade and production which have been hard hit by the global economic crisis.

Mai Tong Ba, director of the Saigon branch of Asia Commercial Bank (ACB), said it was impossible for banks to supervise and track what enterprises would do with the loans they received from banks.

In particular, small and medium enterprises have a host of small expenditures without receipts. Therefore, banks can hardly monitor whether their corporate clients will use the money for the purposes as committed, he said.

It is even harder for banks, he noted, to detect any cheat by enterprises that conspire with one another to falsify contracts and use them as evidence to take out subsidized loans.

Citing an example, he, said Company A would ask a bank for a loan to finance the buying of materials from Company B while Company B would also borrow from another bank to buy goods from Company A.

But in fact, these two companies would fake contracts while the two banks may not have any cooperation link to detect this fraudulent act. The lack of cooperation and coordination between banks in the country is widespread.

The highest lending rate for manufacturers and traders or normal enterprises at banks is 6.5% a year, or even lower for regular customers. Fraudulent businesses can use the cheap loans to deposit in other banks for higher interest rates which are usually above 7.3% a year.

An expert warned that the Vietnamese dong had fallen about 10% against the U.S. dollar since January last year, and that it would lose value by a further 5% this year. Therefore, the expert said, fraudulent companies could use the low-cost loans to buy U.S. dollars.

They can enjoy a greater profit margin when putting the greenback in bank accounts with an annual interest rate of about 3%. In the end, the margin will be at least 8% and dollarization in the economy will increase, said the expert.

To prevent those cheats, banks will need to strengthen their supervision of the subsidized loans by increasing the frequency of examining stocks at the borrower enterprises or asking them to show receipts and other relevant documents.

Banks said they would educate their credit employees so that they could be always aware of possible cheats as well as prevent them from conspiring with corporate borrowers.

The central bank has ruled that enterprises using cheap loans from the subsidized lending program must be held responsible and that the chairmen and CEOs of banks must do their best to strengthen risk management.

However, Vu Thanh Tu Anh, director of the Fulbright Economics Teaching Program, earlier said that if the central bank did not carefully supervise the use of capital from the program, the interest rate support would give rise to an unreal demand for capital in the economy.

The cheap loans which the Government wants to flow into the economy can return to the banking system without creating any added value for the economy, he warned.


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