Lowering interest rates to promote trade

15:35 | 25/03/2014 Economy

(VEN) - On March 17, 2014, the State Bank of Vietnam (SBV) announced reductions in the interest rate ceilings applied to deposits and short-term loans in VND. Credit institutions began to apply these reductions on March 18.

Preferential credit is offered to businesses which apply high technologies in agricultural production

In the first nearly three months of 2014, the macroeconomic situation has shown positive changes with the inflation rate standing at a low level (the price consumer index of February increased by a mere 0.55 percent compared with January and 1.24 percent compared with 2013); the liquidity of the banking system was ensured while the foreign exchange rate and the monetary markets were stable, but the capital absorption capacity of the economy remained sluggish, and the credit growth in the first two months of 2014 compared with late 2013 was minus 1.66 percent. Due to these factors, the SBV decided to reduce interest rates with the aim to help businesses overcome difficulties in production and trade, promoting economic growth.

Under the decision, from March 18, the maximum interest rate applied to non-term and short-term deposits (less than one month) at credit institutions decreased from 1.2 percent to one percent per year; similarly, the maximum interest rate applied to deposits with their terms ranging from one month to less than six months decreased from seven percent to six percent per year; the maximum interest rate applied to deposits with their term ranging from one month to less than six months at people’s credit funds and micro-financial institutions decreased from 7.5 percent to 6.5 percent per year; the interest rate applied to six-month and longer-term deposits is fixed by credit institutions based on supply and demand on the capital market.

The maximum interest rate applied to VND loans which are provided to serve  businesses in fields such as agriculture and rural development, exports, support industries, small and medium enterprises and businesses which apply high technologies decreased from nine percent to eight percent per year; similarly, the maximum interest rate applied to short-term loans provided by people’s credit funds and micro-financial institutions for businesses in these fields decreased from 10 percent to nine percent per year.

In the time to come, SBV will fix the lending interest rate of seven percent per year applied to businesses which buy winter-spring rice for temporary reserve; the maximum interest rate applied to businesses which pilot cooperation models and apply high technologies to promote the export of agricultural products will be seven percent per year (short-term loans) and 10.5 percent per year for medium and long-term loans.

SBV Deputy Governor Nguyen Dong Tien said that the reductions were made based on considering their impacts on banking operations with the aim to encourage credit institutions to continue to lower lending interest rates and increase loans for projects which have good effects on the economy. Along with restructuring debts and increasing loans for prioritized fields, the SBV expects that credit will grow at a suitable level in the time to come.

LienVietPostBank Vice Chairman Nguyen Duc Huong said that the SBV’s decision to lower interest rates this time was suitable to changes in the macroeconomic as well as monetary market situation. Due to lower interest rates, depositors will possibly withdraw their money from banks to invest in other channels such as securities, gold and real estate. However, in the opinion of Nguyen Duc Huong, the interest rate reductions are applied only to less-than-six-month deposits while the interest rates applied to longer-term deposits remain high, encouraging people to deposit their money at banks.

Meanwhile, banking experts from the Hongkong and Shanghai Banking Corporation (HSBC) believe interest rate reductions will have a positive but not very strong impact on credit growth in the time to come. In their opinion, bad debts were the main reason leading to sluggish credit growth in previous years as well as the early months of 2014. Therefore, to promote credit growth, it is necessary to effectively deal with bad debts. Banks will not feel secure to provide more loans when they still have to cope with unresolved bad debts./.

By Viet Anh

Theo ven.vn