Despite several efforts, six commercial banks have not been able to reduce loans for non-production sectors to 22 percent by June 30, as required by the State Bank of Vietnam (SBV).

Representatives of banks said that it was too difficult to ensure the 22 percent proportion of loans for non-production sectors by June 30. Some banks had offered most of their loans to real estate and securities sectors, many of which are long-term, up to 10 years.

Truong Hoang Luong, General Director of the Kien Long Joint Stock Commercial Bank, said his bank had to make every effort to reach the central bank's required rate of non-production loans by June 30.

To have non-production loans account for about 20.3 percent of the total credit, the HCM City Housing Development Bank (HDBank) cut non-production credit for a long time and focused investment in production, trading agriculture and rural areas, according to its deputy general director Dam The Thai.

Some small banks said they had to make a sharp reduction in provision of personal consumer loans, meaning that they would not expect revenues from non-production credit activities any longer.

The General Director of the Orient Commercial Bank (OCB), Trinh Van Tuan, also revealed that his bank had to stop loans for mortgage-backed securities and properties, and even loans for consumer properties, such as buying or repairing residential houses.

Many economic experts, however, were doubtful about the ability for banks to reduce their non-production loans from 30 and 40 percent, or even 50 percent of their total credit to 22 percent, within such a short time.

They said some banks might subvert the regulations so they could reach the central bank's required 22 percent non-production loan proportion, at least on paper.

To do this, the banks and customers involved in non-production areas would rewrite lending contracts but change the purpose of the loan.

So, money flow to these non-production sectors would continue, and would not be pumped into production sectors as expected.

Many production enterprises do not want to borrow money to expand their businesses since bank lending interest rates are still too high.

The central bank's planned action to penalise commercial banks that fail to meet the 22 percent non-production loan rate would be to force the banks to raise their compulsory reserve ratios.

However, this penalty may have a side effect since it would contribute to raising deposit interest rates at commercial banks to ensure higher compulsory reserve ratios./.