Bao Dau Tu
Last week, series of banks reduce lending rate but it would not be a confirmation for new interest rate level.
Since 15 October, Vietcombank reduced VND short term landing rate in five preferential sectors and star-ups. Interest rate of all out-standing short-term loans would be at 6 percent per year maximum – 1 percent lower that current rate. Besides, interest rate applied for efficient corporations that using Vietcombank’s overall products and services would be considered to be lowered.
After Vietcombank’s movements, LienvietPostBank was the first in commercial bank announced to reduce short term lending rate by 1-1.5 percent for new loans, priority to households, rural household, and SMEs.
Experts expected the wave of lowering lending would be continued, at least in remaining state-owned commercial banks.
Under the circumstance of lowing credit growth rate and liquidity redundancy, banks reducing lending rate was not difficult to understand.
Dr Nguyen Duc Thanh, President of Vietnam Institute for Economic and Policy Research (VEPR), said that domestic interest rate level was decreasing due to pressure from reducing credit demand and abundant deposits. This would be the right time for commercial banks to reduce lending rate. Agreed with that view, Nguyen Tri Hieu – economic expert expected lending rate level would decrease from now to the end of the year.
However, many other economic experts judged that since banks had been facing difficulties, decreasing interest rate would not happen in large scale. In fact, most banks only reduced short term interest rate. Bank managers also admitted that State bank’s tightening rate of using short term capital for long term loans made short term capital redundancy and banks still lacked of medium and long term capital.
Besides, some state owned commercial banks had redundant capital from sources with low deposit rate, including ODA, Treasury’s deposit, life and non-life insurance, deposit insurance, etc, which were required to deposit in state owned banks only. Thus, it would be difficult to reduce interest rate in commercial banks.
Truong Dinh Tuyen, member of National Monetary and Financial Policy Advisory Council, agreed that lowering interest rate in large bank would not become the trend for the whole market. The highest barrier would be the increasing bad debt, especially debt of BOT projects. Tuyen warned not to use all methods to ease credit under weak capital absorb situation like now because it might cause high inflation and danger to the economy.
Many bank managers accepted that lower interest rate could only be applied for short term and in some preferential sectors. It was because interest rate difference was maintained at low rate of 2 percent. Meanwhile, in the last five years of restructuring, banks had to use large amount of profit in risk and bad debt reservation funds, hence, financial capability dropped.
Banks could only support the economy when they were strong. Hence, aside from sharing difficulties with enterprises and the economy, banks needed to maintain reasonable benefit to recover themselves, to improve competitive ability, to protect their capital and to handle bad debt. Only then they would be able to reduce interest rate drastically, said a bank representative.