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Clients delay loaning plan as interest rates go down
The FED’s move to slash interest rates to 0-0.25% per annum has had immediate impacts on Vietnam’s financial market. Commercial banks are considering slashing lending interest rates, while clients are delaying their borrowing plans in hopes of further interest rate decreases.
Just days ago, Ha and her husband, in Dinh Cong new urban area in Hanoi, were planning to buy a car. They thought that it was the right time to do this, as banks had resumed consumer credit. Ha said that she could borrow a sum of money equal to 90% of the car value if she mortgaged her real estate, and 70% of the car value if she used the car itself as collateral.
However, Ha and her husband have decided to delay their plans, though they know that the car ownership registration tax will increase from 10% to 12% starting January 1, 2009.
Ha related that she initially intended to borrow VND 200 million for three years. With the current interest rate of 13% per annum, Ha would have to pay over VND 2 million in monthly interest. If the lending interest rate goes down to 10%, the interest she will have to pay will be lower by VND 400,000 a month.
When asked why she does not buy car before the price will go up with the increased ownership registration tax, Ha said that she believes manufacturers will have to cut the sale prices to stimulate the demand.
Tran Thu Hang, General Director of a company specializing in making paint in Hanoi, said that her company’s has signed contracts with some construction companies, which will bring enough jobs to her workers in 2009. However, Hang is not hurrying to borrow money from banks at this moment, saying that she will only sign contracts when the interest rates go down.
The demand for loans now proves to be very low, as businesses that have been under pressure from order cuts and narrowed export markets do not want to borrow money at this moment. Meanwhile, individual clients in the high-inflation period always have to think twice before asking for loans.
Financiers have predicted that in such conditions, the State Bank of Vietnam will have to slash the basic interest rate, which will pave the way for a decrease in the lending interest rate.
How much more should the interest rate be cut to make it reasonable? Experts said that if the central bank wants the lending interest rate to be below 10%, it needs to slash the basic interest rate to 7-7.5%.
However, if so, the deposit interest rate should be only 5-6% per annum, levels that will not attract depositors.
The Governor of the State Bank of Vietnam, on December 17, told the press that the interest rate will be on a downtrend in 2009. However, the decreases will be decided by the supply and demand.
Dr Nguyen Duc Huong, General Director of Lien Viet Bank, said that currently, after FED cut interest rates, not only borrowers, but banks and depositors also want to know if the State Bank of Vietnam will slash the basic interest rate or not.
Dr Le Tham Duong, from the HCM City Banking University, said that while many countries have lowered their interest rates, and Vietnamese businesses have been facing difficulties, the popular lending interest rate of over 10% is considered high.
Tien phong
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