Firms worry about rising interest rates

06:00 | 03/04/2022 Economy

(VEN) - Many banks have increased their deposit interest rates amid high capital demands, prompting business concerns about rising credit costs.

firms worry about rising interest rates
An increase in lending interest rates will negatively affect trade and production activities

Increased deposit interest rates

The deposit growth rate of individual customers has dropped sharply over the past two years, leading many banks to increase their deposit interest rates.

The Vietnam Technological and Commercial Joint Stock Bank (Techcombank) has applied new interest rates since February with increases of 0.4-0.5 percentage points per year, while the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) is offering customers 0.3-0.4 percentage points per year higher for online savings compared to over-the-counter deposits (depending on term of deposit). The highest interest rate cap is 12.4 percent per year at the Vietnam Prosperity Joint Stock Commercial Bank (VPBank) when depositing Prime Savings on the digital bank VPBank NEO.

Increased interest rates on deposits, however, are raising business concerns about lending rates. As businesses are in dire need of capital to resume their operations in the new normal, increased lending interest rates would negatively affect trade and production activities.

Nguyen Tri Minh, director of the Minh Cuong Phat Paper Co., Ltd. in Dong Nai Province, said the company is recovering strongly. However, an upward adjustment of lending interest rates would affect the company’s financing sources, including old loans, Minh said.

Interest unlikely to fluctuate

An increase in interest rates not only puts pressure on businesses but also affects bank profits. Tensions between Russia and Ukraine are affecting the world economic situation, including Vietnam. In Vietnam, inflation pressure is increasing greatly and the banking sector is classified as being negatively affected. Financial-banking expert Nguyen Tri Hieu said that faced with the likelihood of inflation, banks have to increase their deposit interest rates to ensure positive real interest rates to prevent depositors from withdrawing their money and investing it in other assets, reducing bank profits.

Although deposit interest rates have increased in recent times, banking sector insiders expect lending interest rates to remain stable as the government has taken steps to continue implementing its reduced lending interest rate policy and promoting debt restructuring for customers. Accordingly, the government has announced a VND40 trillion preferential interest rate package to support pandemic-hit enterprises in priority areas, with their loans enjoying an interest rate cut of two percent. These moves are necessary and appropriate to support the business community in the early stage of post-pandemic economic recovery and development, experts say.

The State Bank of Vietnam will continue to closely follow the government’s directions and urge credit institutions to synchronously implement solutions in order to support enterprises’ recovery.

Since the beginning of the pandemic, the State Bank of Vietnam has lowered key interest rates three times, amounting in total to up to two percent.

Thanh Thanh