How to lower interest rates is a burning concern of the Government, businesses and banks as well. But, this objective is not simple, although many banks have now announced “relatively attractive” lending rates.
For the sake of businesses
Since September 2011, the Bank for Investment and Development of Vietnam (BIDV) announced it will lower lending rates five times, with the latest cut by 0.5-1 percent, to 14.5 - 17.5 percent per annum. These are considered the lowest interest rates on the market now.
However, the rate of 14.5 percent is only applicable to only three groups of borrowers: Exporters, agricultural and rural companies, and affordable house buyers. To borrow money from the bank, they have to satisfy a number of conditions and procedures prescribed by the State Bank of Vietnam (SBV) while not all companies and people can meet.
Recently, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) has also announced to cut lending rates by 2 percent to bring short-term commercial and service loan rate to 17 percent per annum, short-term production loan rate to 16.5 percent, and short-term export loan rate to 16 percent.
The Vietnam Bank for Industry and Trade (Vietinbank) and the Vietnam Bank for Agriculture and Rural Development (Agribank) have also joined this campaign. Smaller lenders like Vietnam International Bank (VIB), Asia Commercial Bank (ACB), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Tien Phong Commercial Joint Stock Bank (Tienphongbank) and Southeast Asia Commercial Joint Stock Bank (Seabank) have launched preferential loan programmes for businesses.
What is practicable?
Sending lending rates to less than 10 percent per annum like in the 2005 - 2007 period is a fervent desire of Vietnamese business community. But, we need breakthrough solutions to this issue. Of late, the Vietnam Financial Investors Association (VAFI) has put forth three plans to quickly bring down interest rates.
One, the State Bank of Vietnam (SBV) guides State-owned commercial banks to lower lending rates to force commercial joint stocks banks to follow (this is what it is doing). Besides, basing on inflation data and interbank market, the SBV inject money into the system to adjust interest rate ceiling. However, according to the VAFI, using this method, interest rates will fall very slowly and may range from 14 percent to 18 percent by the end of 2012. This remains too high for the business community.
Two, the VAFI asked the central bank to immediately reduce deposit rates to 11 percent per annum. According to data collected by the VAFI, the money placed by institutions account for 40 -55 percent of deposits at banks. This is a high rate and quickly brings down lending rates. The immediate rate reduction applied to this group of depositors will not leave effect on the capital mobilisation of commercial banks and on the foreign exchange market.
In this option, the VAFI proposed controlling interest rates of foreign currency-denominated deposits and gold at 1 percent or lower (this is only the first step) to increase the attractiveness of VND deposits, encourage gold and foreign currency sales. The central bank needs to cap ceiling lending rates of 18 percent per annum.
By the end of 2012, lending rates will range from 12 percent to 16 percent, with popular rates standing at 14 - 15 percent. Such rates remain high.
Three, according to the VAFI, Vietnam needs to issue a draft decree on gold business management soon since it has positive effects on the stability of foreign exchange market. The key provision of the decree is VAT and excise tax of 20 percent subjected to gold trading activities; and the elimination of water-treading gold speculation. Then, people and speculators will see that Vietnamese dong is strongly protected and a stronger local currency will channel cash flows into the banking system. The VAFI estimates that the central bank will earn US$5 billion (VND100 trillion) this year from this ‘dead’ capital without having to create cost-intensive gold mobilisation policies.
This option will quickly help the stock market to revive, the bond market to develop and the banking system to take long-term credit sources. This option not only helps increase forex and gold reserves at banks. Foreign reserves are expected to reach US$30 billion in the next three years.
Q.C
Vietnamese
