Lending Interest Rates on The Downward Trend

According to this organisation’s figures, lending interest rates to prioritized customers as encouraged by the Government, including export enterprises, enterprises operating in the agriculture and rural areas, and SMEs are decreased a great deal by banks. The lending interest rates offered to such customers range between 12 and 12.5 % per annum; and between 13 and 13.5 % per annum at state-owned banks and at joint stock lending organizations, respectively. However, Ms Huong emphasizes that such lending interest rates are applied for customers with adequate conditions to get loans. In the case of other enterprises operating in realty or stock areas, the lending interest rates are decided by the level of risks. Representative of VBA says that during the working session, commercial banks point out many difficulties in reducing mobilizing interest rates despite the fact that lending interest rates already go down. If mobilizing interest rates are immediately pushed down to 10 % per annum, many difficulties will prevail for banks since the mobilized capital will drop significantly, unless solutions are accompanied.

In order for the policy to reduce lending interest rates to be well implemented, three proposals are put forward by banks, including: Firstly, there needs to be a roadmap for the reduction of both mobilizing and lending interest rates to avoid shocks; secondly, reduction should be conducted on short-term deposits/loans before it is done on mid and long term deposits/loans; thirdly, the interest rates of government bonds will have to be reduced before banks reduce mobilizing rates. The former Deputy Governor of the SBVs states that the interest rate of government bonds is the standard level for credit orgarnisations to base on for making decision about mobilizing rates. However, if the standard interest rate still remains at 11.5 % per annum, it is very difficult to require banks to make a reduction below such level.

 

A roadmap needed
Currently, management authorities are quite anxious about the progress of interest rate reduction of banks. However, it is not easy at all to get the interest rates of a nation’s monetary market decreased by a couple of %ages within a month. Although quite a lot of banks already declare reduction in VND lending interest rate by the second week of June, interest rates are still around 13-14 %, 14-15 %, and 15-17 % per annum for VIP customers, ordinary customers and consumption and not-for-production purpose loans, respectively.

 

With such a platform of the whole monetary market, the reduction of mobilizing interest rates to 10 % and lending interest rates to 12 % needs a roadmap and comprehensive solutions. A decrease in lending interest rates must stem from a similar move in mobilization interest rates. However, many experts believe that it is very difficult to reduce banking interest rates when last year’s bid winning interest rate of five-year term government bond is 11.2 % per annum. As usual, banking interest rate must be higher than that of government bond (since the risk of government bond is nearly nil). Once the interest rate of government bond goes up, the common interest rate of the economy will also increase.

 

A possibility of reducing interest rates still exists
According to the website of the SBV, at the meeting on 11 June 2010, leaders of commercial banks believe that with such positive premises as stability of the macro-economy, drastic instructions of the Government, support of the SBV, and capital supply – demand on the current market, the possibility of reducing interest rates does exist. However, almost all the general directors of commercial banks hold that there needs to be a certain roadmap, first and foremost to concentrate on getting interest rate of short term deposits/loans reduced and reducing lending interest rates for prioritized customers.

 

Banking interest rates, especially VND lending interest rates will continue to fall in coming time. This is a forecast of some leaders of commercial banks. This statement is based on the low growth rate of outstanding loans during the first six months of commercial banks. Therefore, the pressure to increase outstanding loans to achieve profit targets forces banks to offer lower lending interest rates. In addition, representative of HSBC reveals that the lending interest rate of 12 % per annum is applied for a small number of its loyal customers. This information exerts an influence on local commercial banks’s competition to win customers from foreign banks. Being aware of the inability to quickly reduce interest rates simply with the method to adjust interest rates, some commercial banks already think of further cutting cost so as to cut expense in mobilizing fund. Perhaps this is the most stable and effective method.