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Banks flirt with low interest rates
Vietcombank announced on Thursday a reduction of up to 2 per cent in interest rates on loans made in Vietnamese dong, depending on terms.
The bank is now posting lending rates ranging from 16 per cent per year for loans made to exporters and manufacturers to 20 per cent per year for loans made to enterprises in non-productive sectors, including loans made for real estate or securities investment.
The lower rates are aimed at key borrowers involved in agricultural production and exports, as well as small- and medium-sized enterprises (SMEs).
However, Vietcombank has also slashed its rates on short-term consumer loans to 18 per cent, while longer term loans will carry a rate of 18.5-19 per cent.
Since September, the Bank for Investment and Development of Viet Nam (BIDV) has cut lending interest rates five times. BIDV is currently quoting rates as low as 14.5 per cent for strongly-performing businesses involved in agricultural production and exports, as well as SMEs.
Since early last year, commercial bank lending rates have surged as high as 25 per cent due to the central bank's tightened monetary policies brought in to tame inflation.
Due to low liquidity, many small banks have also offered exceedingly high deposit interest rates, exceeding the ceiling rate of 14 per cent per year set by the State Bank of Viet Nam. The high cost of attracting capital in turn caused the banks to charge even higher rates on loans, putting pressures on business needing to finance operations and investments.
Economist Dinh The Hien told Sai Gon Dau tu (Sai Gon Investment) that two requirements had to be met to reduce lending interest rates. First, inflation needed to be brought down to a reasonable level, enabling banks to lure depositors at lower interest rates. Second, the money supply needed to be increased.
The problem, however, was that the first requirement was in conflict with the second one, as a more abundant money supply would increase inflationary pressures, he said.
Last week, the central bank granted permission to five credit institutions to maintain compulsory reserves for Vietnamese dong deposits at below the regulated levels for a five-month period beginning this month. This was intended to help loosen money supplies under stringent conditions while reducing lending rates, Hien said, urging the State Bank to pump additional money into the system via open market operations. Lending policies would then ensure that the additional capital would flow into production, he said.
A report entitled Macro Asian Economics Q1 2012, issued by HSBC Global Research, has forecast that easing inflation would spur the State Bank to decrease its key policy rate from 14 per cent to 13 per cent in the first quarter, further reducing it to 9 per cent by the end of 2012.
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