The foundation for this interest rate reduction originates from the State Bank of Vietnam (SBV)’s tenacious determination to bring the deposit rate cap to 14 percent per annum. If commercial banks strictly follow the policy, interest rates will likely drop in the coming time. Indeed, banks only slash interest rates on short-term loans for importers, exporters and borrowers involved in agricultural and rural development. Will interest rate actually be reduced in the coming time?
The market has been buoyed up by banks’ recent preferential credit packages in the past one month. While credit growth stays at 15-18 percent from the same period last year and exorbitant interest rates are distressing businesses, the rate reduction is greatly meaningful.
Not much
Outwardly, commercial banks quickly introduce interest rate-supporting programmes. They pledge to lend VND1,000 - 2,000 billion of soft loans bearing annual rates of 17 - 19 percent for importers and exporters. Vietcombank outstands with 16 percent per annum. No commercial lenders want to be late in announcing their interest rate-subsidised programmes - a much-expected move by capital-short companies in the past time. This move also gives a boost to their PR activities.
In reality, lowering interest rates is not a simple action and it is impossibly achieved right away by supporting programmes. Banks mobilised deposits at annual interest rates of 18 - 19 percent per annum in a long time and they do not easily accept losses following the cutback and do not have an abundant capital source amid credit growth strains. If illiquidity still occurs and small lenders still rely on supports of the central bank, they will not easily open the access to low-rate loans.
However, the interest rate-subsidised programme with VND2,000 billion is a simpler job for them. There is no actual assessment on lending operations and the amount of loans imposed the low rate of 17 - 19 percent per annum. To be honest, the amount of VND2,000 billion is too small in relation to the demand of the economy where other loans are being subjected exorbitant interest rates.
Without a doubt, this programme makes initial positive signals. This may lay the groundwork for prospective rate reductions. Moreover, once the SBV delivers the message concerning rate cut, it will make technical regulations to support the rate cut tendency. For example, it is resolute to the cap of 14 percent per annum on deposits. As soon as banks can mobilise deposits at real interest rate of 14 percent, they will be able to consider lowering rates to below 20 percent.
Hard to go fast
When will interest rates really drop and when will capital access be easier? We will have a certain answer when macroeconomic stability is obtained. In theory, interest rates are determined by market laws but, to stabilise macro economy, the SBV is employing administrative orders to intervene into the market. If macro-economy is better, inflation eases and production revives, monetary policy will be loosened and interest rates will be slashed.
Nevertheless, as often as not, inflation and prices tend to go up in early and last months of a year. Companies also need more money to settle payments, threatening liquidity at banks and interest rate stability.
A banker said although commercial banks have lowered interest rates to the annualised limit of 14 percent, hardly any can mobilise deposits at this rate because the borrowing demand is rather high at this moment. A reduction in interest rates will bring about liquidity strains. According to statistics, with the cap of 14 percent per annum plus requirement reserve ratio and other fees, input interest rates already climb to 18-19 percent. As a matter of fact, the interest rate-supporting programme will be hardly multiplied in reality. From now till the end of this year, hardly any bank can lower lending rates to 17 - 18 percent per annum.
CPI tends to slow down but the tendency is not stable. Inflationary pressures intensify towards the end of the year and once inflation climbs, interest rates are unlikely to go down. For that reason, banks are necessarily careful when they weigh up rate cuts in this context.
State-owned banks and large-scale joint stock lenders will have an advantage in attracting deposits, and have a better condition to diminish interest rates. The room for credit growth is very wide but some commercial joint stock banks have almost reached the limit of 20 percent set for 2011 and they will difficultly lower rates on default of loans. For example, BaoVietBank reported that its credit growth had reached about 16 percent and it had proposed the SBV to extend its own growth limit to 100 percent, or at least 50 percent, but it was turned down.
According to data from the SBV, credit growth was estimated to increase 8.85 percent in the first eight months, much lower than the growth rate of 16.9 percent in the corresponding period of 2010 but equal to just a half of expected growth of 15 - 18 percent in 2011. Although the room for credit growth is broad in the last three months of 2011, a sudden rise is improbable.
At recent seminars on impacts of monetary policies on banks and businesses held in Da Nang, Ho Chi Minh City and Hanoi by Chao Dai Viet Company and the Vietnam Chamber of Commerce and Industry (VCCI) in collaboration with VPBank and SeAbank, credit and interest rate remain a common concern of the business community. Weak internal capacities of Vietnamese enterprises plus a fragile capital structure inhibit banks from increasing loans for them - a reason for the current high interest rate.
Le Minh
Vietnamese
