The first message newly appointed State Bank Governor Nguyen Van Binh delivered was a real rate cut in support of economic development. And, before his resolute direction vis-à-vis ceiling rates, commercial banks announced rate reduction plans. However, whether interest rates are actually slashed in this period or not is still uncertain.
Serious about interest rate cap
The cap on interest rates of Vietnamese dong-denominated deposits is specified by the State Bank of Vietnam (SBV) in Circular 02/2011/TT-NHNN dated March 3, 2011. But, the real rate is raised by 18 - 19 percent per annum, much higher than the ceiling rate of 14 percent, on the fierce competition for unemployed money from the public. As a result, lending rates are pushed up to 20 percent per annum, even 26 percent at some small banks.
However, commercial banks used plenty of tricks and instruments to dodge the rate cap regulations, causing more difficulties for both the banking system and the economy. Commercial banks had to employ more staff and do more work to legalise above-the-cap rates. The negotiation on interest rates applicable to specific depositors potentially corrupted bank staff. Meanwhile, banks disregarded policies and the direction of management bodies. And, bearing all these problems was the debt-burdened business community which was trying their utmost to pay exorbitant interest rates while the economy is getting through the tough time. While production was strangled because the public reduced spending, production costs soared and spiralling inflation was hardly controllable.
However, this message by SBV Governor Nguyen Van Binh was tough enough to impact the entire banking system. Most banks simultaneously lowered interest rates as required by the State Bank. Only a few deliberately violated the order and they are being inspected.
As of September 8, the State Bank’s hotline was informed of ceiling rate violations at some banks. In Hanoi, Agribank - Thanh Xuan Branch, Vietnam Tin Nghia Bank and Western Bank were reported to infringe the rule. In Da Nang City, Dong Da Savings Fund and Vietnam Tin Nghia Bank raised deposits at 19 percent per annum and Saigon - Hanoi Bank imposed deposit rates of 17.5 percent. Other localities also found violators, including Saigon Bank in Hai Phong City, Maritime Bank in Ninh Binh province, and Dong A Bank in Ho Chi Minh City.
The SBV ordered provincial and municipal SBV branches to report on banking operations on August 8 and 9 to verify bank compliance.
Boom in interest rate-supported programmes
Along with interest rate reduction, banks also offered interest rate-supported programmes. Accordingly, many borrowers can access soft credit bearing an interest rate of below 20 percent per annum in August and September.
Maritime Bank, one of the first banks to announce rate cut, imposes short-term rates from 17.5 percent to 19 percent per annum. Medium and long term loans are levied 18 - 20 percent rates. Its discount rates on US dollar-denominated loans are also slashed to 7 percent per annum.
Sacombank announced VND2,000 billion dedicated to importers, exporters and companies operating in agriculture and rural development with preferential interest rates ranging from 17 percent to 19 percent per annum.
ABBank will have more than VND1,000 billion of soft loans for importers and exporters, which are to enjoy preferential interest rates from 18.3 percent per annum. Smallholding business households or individuals are offered a discount of 1.5 percent from normal lending rates.
TienPhongBank also plans to offer VND1,000 billion of soft loans for small and medium sized exporters, direct manufacturers, electronics and telecom companies, IT companies, and hi-tech companies who are expected to get preferential interest rates of 17 - 19 percent per annum. Borrowers operating in agriculture and rural development will be granted a 0.5 percent discount from normal rates.
Other lenders like VP Bank, Eximbank, NamABank, TrustBank and SeaBank also do not want to be left behind, immediately following with soft credits bearing interest rates of 17 - 19 percent per annum. Their beneficiaries are also importers, exporters and companies operating in agriculture and rural development.
The scope of soft loans is larger in State-owned commercial banks and commercial joint stock banks. Agribank, the largest lender in Vietnam by assets, lowered lending rates to no more than 19 percent per annum from September 12. Short-term loan interest rates are set from 17 percent to 19 percent. Households living on farming, forestry, fisheries and salt production are offered the preferential rate of at least 17 percent, while other borrowers are imposed at least 18 percent.
Vietcombank - Da Nang Branch pioneered reducing borrowing rates to 17 percent on loans with maturity of less than one year to small and medium enterprises. The largest listed lender confirmed offering preferential rates of only 16 percent per annum for exporters and companies engaged in agriculture and rural development.
The rate cut programme is creating a good ripple effect as it helps pull the plug on the rate race triggered by banks and supports national economic development. However, it is easy to see that borrowing terms are short. The business community expects rates to be lowered further to reduce financial expenses and revive production activities.
Vietnamese
