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Lending interest rates yet to decrease
On July 8, the Bank for Investment and Development of Vietnam (BIDV) announced lending interest rate cuts for both VND and US$ loans. People believe that the bank’s decision will trigger a new wave of slashing interest rates. However, to date, no other bank has followed the move.
The director of a state-owned bank branch once said that it would be best if banks sat together and reached a consensus on cutting interest rates, as the current rates would make banks incur losses.
However, banks have not been able to reach any agreement on slashing interest rates as interest rates depend not only on banks’ financial capability, but also on many other factors which are not within the banks’ control.
Commercial joint stock banks now offer very high deposit interest rates of 17.4-18.9% per annum, and some banks are now offering 19% per annum. Meanwhile, there is no sign that lending interest rates are decreasing.
The liquidity of some banks has not improved, and small banks still have to mobilise more capital from the public. The inter-bank interest rate remains as high as 20-21%.
Bankers affirm they still do not have any plans to cut lending interest rates, as they still have to offer high deposit interest rates in order to retain clients.
However, sources say that state-owned banks, which have deposit interest rates 1% lower than joint stock banks, are considering lowering lending interest rates. In fact, high interest rates have not helped banks mobilise capital; therefore, state-owned banks may reduce deposit interest rates in order to reduce losses.
Currently, lending interest rates offered by banks are hovering around 19.5%-21%. Only banks’ loyal clients can enjoy interest rates a bit lower than these levels. Despite the high lending interest rates, the demand for borrowing money remains very high. In many cases, banks have refused to provide loans at high interest rates because their credit growth rate must not be higher than 30%.
Experts do not think that the lending interest rates will go down in the short term for two reasons. First, banks have to mobilise capital at high costs, both from the public and institutions, therefore, they do not have low-cost capital to lend to clients.
Second, banks fear that businesses cannot pay debts, and they are trying to tighten credit.
The director of a joint stock bank said: “Tightening credit may bring losses to banks, but in this case, banks still can preserve capital. If banks still push up lending in the context of higher input material prices and high lending interest rates, banks may lose original capital as banks cannot pay debts.”
However, experts say that some banks may consider slashing lending interest rates as their US$ capital has become more profuse. Now banks are lending at 10-14% per annum, relatively high if compared to the interest rates now being applied in the world (2-5%). The businesses that borrow money in dollars seem to have better debt payment capability than the ones that borrow in VND. That explains why BIDV cut VND interest rates by 0.2% per annum, while it cut US$ interest rates by 2% per annum.
Basic interest rates will depend on inflation
The basic interest rate announced by the State Bank for July remains at 14%. It is very likely that the rate will be maintained for August as the money flowing into banks has become more stable, while banks are tightening loans.
The State Bank is trying to gradually reduce the lending interest rates; however, this does not entirely depend on banks. The top priority now for Vietnam is to fight inflation, while a high interest rate policy proves to be a good measure to curb inflation.
VNN
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