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Banks’ liquidity not problem anymore: VNBA
On September 25, banks took the first steps to slash lending interest rates as the central bank decided to keep the basic interest rate at 14% per annum and raise interest rates on compulsory reserves from 3.6% to 5%. Duong Thu Huong, Secretary General of the Vietnam Banking Association, talks about lending interest rates in the time to come.
What do you think lending interest rates will be like, in the time to come, with the decision by the State Bank of Vietnam?
Right after the decision by the central bank was promulgated, five state-owned banks announced the 0.5% cut in lending interest rates. On September 26, VNBA called on its members to provide loans with preferential interest rates for small- and medium-size enterprises.
Banks have been slashing lending interest rates since August, which made the interest rates of state-owned banks decrease to 20%. The rate has now decreased to 19.5% since the latest decision. Meanwhile, the average interest rate offered by joint-stock banks is 20.5%.
In fact, banks have different interest rate policies for different clients. As far as I know, in some cases, businesses can borrow money at just 17% per annum. I believe that other banks will join state-owned banks’ moves to cut lending interest rates.
Lending interest rates have been decreasing, but the decreases have not been big, while not every business can access bank loans. Some experts say that if the central bank does not lower the basic interest rate, banks will not cut lending interest rates considerably, as they don’t have to. What would you say about that?
The current basic interest rate is 14% per annum, but this does not mean that banks have to maintain the lending interest rate of 21% per annum. If banks try to keep the high lending interest rates, clients will not be able to pay debts, which will make banks themselves suffer.
Will VNBA come forward and call on its member banks to slash deposit interest rates?
Previously, the association once called on banks to cut deposit interest rates in order to help cut lending interest rates. However, the call did not receive the support from member banks, which said that interest rates must ensure real positive profit for depositors.
This time VNBA will not try to seek a consensus on deposit interest rates. However, I personally think that banks should gradually reduce deposit interest rates for the sake of the national economy. For example, if banks’ current interest rates are 18-19% per annum, they should slash the rates to 16-17% per annum, which would pave the way for lending interest rates to drop to 18-19% from the current 21% – bearable for businesses.
Do you think that small banks will face problems in liquidity if they reduce interest rates?
In fact, the high deposit interest rates offered by banks in the past did not help the deposit volumes increase sharply as expected. The capital just went from one bank to another. The thing will not happen anymore if banks all agree to slash deposit interest rates.
I believe that with the decision on allowing banks to use the compulsory bonds they purchased at the March 17, 2008 issuance for open market operations, the interest rates on the open market will decrease. Meanwhile, the interest rate on the interbank market has been stable at 12-13% per annum, which makes me believe that there is no need to worry about banks’ liquidity.
VNN
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