Banks cut lending interest rates on gov’t advice

10:15 | 18/05/2016 Economy

Last week several banks cut their lending interest rates on the recommendation of the State Bank of Viet Nam.

Banks cut lending interest rates on gov’t advice

Vietcombank set its rates for medium- and long-term loans at 10 per cent a year, down from 10.5 per cent — Photo

State giant Vietcombank set its rates for medium- and long-term loans at 10 per cent a year, down from 10.5 per cent. The bank also earmarked VNĐ300 billion ($13.4 million) to lend to companies for expansion. Vietcombank said this package was made possible by its cut in operational costs, strong risk management, and maximised efficiency.

BIDV, another large State-owned lender, has also reduced its short-term rates by 0.5 per cent for selected borrowers.

Medium- and long-term loans for manufacturing and business can now be obtained at less than 10 per cent interest, down from the previous 10-11 per cent.

Vietinbank, Agribank, Saigon-Hanoi Bank and many others have since followed suit.

The banks’ rate cut decision came after Prime Minister Nguyễn Xuân Phúc met with 300 business executives in HCM City on April 29. At the meeting he urged the central bank to maintain reasonable interest rates on loans for manufacturing and business, keep foreign exchange rates under control, and provide all assistance to the business community..

With regard to public debt, some analysts said the Government recently issued more bonds mainly to serve rollover of debts because many short-term debts had fallen due.

Consequently, the government had to compete with businesses to get loans from banks, thus putting upward pressure on interest rates.

But bad debts are believed to be the main reason for making interest rates at least 2 per cent higher than the average inflation rate of the last few years.

VietinBank’s bad debt ratio as of March 31 was 0.96 per cent, or equivalent to VNĐ5.3 trillion, more than half deemed irrecoverable. For Vietcombank, the figure was 1.84 per cent, equivalent to VNĐ7.6 trillion.

But these are official figures, and speculation has been rife for long that the actual figure could be in double digits.  

The dampening effect on liquidity and profits means the banks cannot lower lending interest.

Some analysts expect the interest rates to dip by a further 0.5 per cent this year since the dollarisation could decrease thanks to the central bank’s new mechanism to manage foreign exchange rates more flexibly.

The policy is expected to increase risks while reducing rewards at the same time for those keeping dollars.

The Dong is unlikely to see any major devaluation also since the possibility of the US central bank increasing rates is low as the inflation rate is still much below the 2 per cent target.

The central bank’s determination to limit loans to the property sector is likely to help reduce bad debts and constrain credit growth, easing the pressure on lending interest rates.

Some analysts said to bring down the interest rates the central bank should not rely solely on banks’efforts since the latter face many difficulties themselves.

Instead, it needs to instil market discipline by severely punishing all violations of interest rate regulations, they said.

The national lender should also seek ways to regularly reduce the benchmark interest rates, which has been kept unchanged since 2014../.


Source: VNS