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Banks fear interest rates will go down further
Bankers say that the current basic interest rate of 8.5% is reasonable. If the rate goes down further, they will face big difficulties.
After decreasing five times, the VND basic interest rate has dropped to 8.5%, which means that the maximum lending interest rate is 12.75%. The lower interest rate was expected to push up disbursement for loans.
However, no big change in loaning has been seen. According to the State Bank of Vietnam, credit has grown by some 21% over 2007. Comparing this with the report about credit growth rate in October, one sees that the credit growth rate of the banking system in the last two months was just 1.5%.
A lot of reasons have been cited to explain the slow credit growth rate despite the interest rate decreases. The most prominent reason is that businesses now keep cautious when deciding to borrow money from banks. The low purchasing power has forced businesses to think carefully about their investment projects.
Bankers all say that the currently applied 8.5% basic interest rate proves to be reasonable. If the rate is slashed further, bankers will face a lot of difficulties.
If the rate goes down further, the profit of many banks will be affected. Another risk which has been mentioned is that capital mobilisation will slow down.
Nguyen Duc Huong, General Director of Lien Viet Bank, said that the overly low interest rate will not be able to keep money in banks.
At a banking conference on December 30, Prime Minister Nguyen Tan Dung asked commercial banks to slash lending interest rates in order to share difficulties with businesses.
Chairman of Vietcombank Nguyen Hoa Binh said that banks really want to provide loans at low interest rates, but in order to do that, banks need to have low cost capital to provide. Meanwhile, it is impossible to attract capital with low interest rates.
“We need to keep mobilising capital, or we will lack capital. One should not think that capital is abundant,” Binh said.
It is expected that VND420tril worth of preferential loans will be provided in the time to come as a part of the government’s $1bil demand stimulus package.
TBKTVN
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