vietnam's finance

interest rates going down

On October 22, the state-owned Bank for Investment and Development of Vietnam (BIDV) announced it will cut lending interest rates. The highest rate will be 17.2% per annum, while the lowest 16.2%, which means the decreases of 1-1.3% from the rates applied at the beginning of the month.

Another state-owned bank, Agribank, is now lending at 16.5% per annum to enterprises that collect rice from farmers in the Mekong River Delta for export, which represents a 1.3% per annum decrease over the beginning of the month.

Nguyen Van Se, Deputy Director of the Transaction Centre No 2 of Vietinbank, said that the lending interest rate applied to loyal clients and import-export companies will be 17.8% per annum for short-term loans and 18.5% for longer-term loans, commencing October 22.

VIB’s is offering the interest rate of 18% for loyal clients, while Orient Bank has cut the interest rate by 0.3%, and Viet A bank is lending at 18.5-19% per annum.

In general, joint-stock banks’ lending rates hover around 18-19.5% per annum, while the lowest rate is 17.5% only.

Capital cheaper, but more difficult to access loans

The deputy director of a joint-stock bank in Hanoi said that though lending interest rates have been decreasing, which means more clients are eligible to access bank loans, his bank dares not push up loaning due to the economic uncertainties in the world. The global recession has forced people to tighten their purse-strings. Importers have asked Vietnamese exporters to reduce prices, while orders have been diminishing.

The deputy director said that his bank dares not give loans to enterprises which purchased big volumes of commodities before at high prices and now want to borrow money to purchase more when the prices go down.

Se said that state-owned banks now offer to lend at 17.2-17.5% per annum only, but he thinks that the credit growth rate will be low.

Meanwhile, businesses have urged banks to slash interest rates further. The director of an An Giang-based seafood company said that the company does not want to borrow a lot of money as the lending interest rate is still high at 18% per annum. He said that businesses are dreaming of interest rates as low as 12-14%, which prove to be reasonable and affordable for businesses to do business and expand production.

Interest rates cannot fall sharply

Explaining why interest rates have just decreased slightly, the State Bank of Vietnam said that the government is still prioritising the fight against inflation. The lending interest rates are high because of the high deposit interest rates and high compulsory reserves. Any mistake in dealing with the two factors may affect the fight against inflation.

In order to slash lending interest rates, it is necessary to reduce deposit interest rates. However, banks need to be cautious in slashing deposit interest rates, since sharp interest rate decreases will affect their ability to mobilise capital. Deposit interest rates will go down when the inflation rate is curbed.

As for the compulsory reserves ratio, the central bank said that further reductions cannot be done right now for fear that the high inflation may return. Meanwhile, the capability of paying more for the compulsory reserves will still depend on the financial situation of the State Bank.