The message from the State Bank of Vietnam (SBV) has shown that interest rates are likely to be pulled down.
The message of the SBV was officially made public on 12th March, declaring that key interest rates and the ceiling of deposit interest rate will simultaneously decrease. Accordingly, from 13th March, the refinancing rate will fall from 15 percent per year to 14 percent per year, the overnight interest rate in interbank electronic payment will drop from 16 percent per year to 15 percent per year, and the discount rate will be lowered from 13 percent per year to 12 percent per year.
The deposit interest rates will also decrease 1 percent, to 13 percent per year. As for local People’s Credit Funds, deposit interest rates with terms longer than 1 month will drop from 14.5 percent per year to 13.5 percent.
Reducing interest rates without loosening monetary policies
In an official press conference, Governor Nguyen Van Binh of SBV stated that the reduction of interest rates does not mean loosening of monetary policies; therefore, it will have no negative influence on inflation.
The information of the SBV cutting interest rates has spread since mid-February, and in fact the market has operated after this trend. Banks were in a race to offer preferential credit packages for agricultural and rural regions, for export as well as for small and medium enterprises. Although there has not been any statistics estimating how deeply enterprises and the people have access to loans, the information has confirmed that interest rates will be reduced according to intention of managing authorities.
For a very long time, deposit interest rate ceiling has always been 14 percent per year and at some moments it rose sharply even to over 20 percent per year; currently many banks still have real deposit interest rate higher than required ceiling. On the other hand, there are also many banks that listed interest rates under the ceiling, up to 12 – 13 percent per year, even before the SBV officially released the information cutting interest rates.
According to Governor Nguyen Van Binh of SBV, deposit interest rate reduction will positively influence loan interest. Accordingly, when the SBV lowers key interest rates, credit institutions will have opportunities to access cheaper and more abundant capital sources and they themselves will also reduce interest rates.
Real loan interest rates are cooled down, although many enterprises still report interest rates at over 20 percent per year. The SBV has estimated that loan interest rates can be pulled down to 14.5 – 16 percent per year, as long as the economy develops well, as well as the supply and demand of capital are abundant. Those interest rates are lower than before in the viewpoint of management authorities, however compared to the capacity of suffering of enterprises, they still remain high.
Despite being a heavily administrative order, reducing the interest rate ceiling at this time is a careful and clever move when the management authorities let the market freely cut rates before they applied regulations to support the downward trend.
Some people worry that reduction of interest rates will signal a loose monetary policy, which will negatively influence inflation if it happens too soon, especially with recent fuel price increases, and the electricity and coal sectors about to raise prices. However, according to calculation of Ministry of Finance, if energy prices increase by 10 percent, they will raise year-all inflation for 0.84 percent, and raise current inflation only 0.24 percent, therefore it will not influence inflation control too much.
The Governor also confirmed that if inflation increases stably, the managed interest rates will also increase and vice versa. However, by macro-economic analysis, the SBV said that it is improbable that inflation will increase, even when the world economy faces many difficulties.
The remarks of the International Monetary Fund (IMF) have also acknowledged the Vietnam government’s efforts in stabilizing the macro-economy and controlling inflation, especially when well-known credit rating agencies have raised one level for Vietnam. In a meeting with the SBV in 12th March, IMF forecasted that growth rate of Vietnam this year will be from 5 percent to 6 percent and inflation will be from 9 percent to 9.5 percent.
When will enterprises get cheap loans?
In fact, enterprises are still suffering difficulties gaining access to capital, and it is impractical for them to expect to get cheap loans, although the SBV spread the message of cutting interest rates to support enterprises and the economy last September. Afterwards, there was a long time of intense liquidity when interbank interest rates were pushed up sharply and it was the first time when collaterals were required when banks lent and borrowed money mutually, because several banks had too low liquidity and were forced to “snatch” capital of other banks without the capacity of repayment on due. With such an intense liquidity even among banks internally, how could enterprises dream of cheap loans? The information of reducing loan interest rates therefore did not practically come into life.
In fact, BIDV is always at the forefront of cutting interest rates with 5 times of reduction; however, corporate loans still account for a very small part in outstanding loans. Top names such as Vietcombank, Viettinbank, Agribank, and ACB have not confirmed any success in attracting enterprise customers. In several large banks, the highest rate of loans for enterprises with outstanding loans is from 15 percent to 20 percent. However in small banks, preferential loan packages for enterprises account for only several percent out of total loans. Messages of cutting interest rates have been just for media purposes.
Currently, liquidity has been much improved compared to several months ago, although there are still several banks breaking the law to mobilise capital with interest rates higher than allowed. The SBV Governor analysed that recently banks have suffered liquidity problems. The reason is that for many years, credit growth of the banking system was very hot, the rate of loans to deposits have been over 100 percent. Moreover, there is an inadequacy of terms when 80 percent of deposits are short term, in contrast to 40 percent of loans being mid or long term, which has gradually caused liquidity problems for banks. Till now, liquidity of the banking system has much been improved and therefore interest rates now can be reduced. As planned, interest rates will be lowered 1 percent quarterly, if the factors influencing inflation will change in a positive way.
The SBV Governor also ensured that the four sectors with priority for accessing loans are agriculture and rural regions, export, supporting industries, as well as small and medium sized enterprises. Last year, growth of export loans reached 58 percent, making a record of many years, while loans for agriculture and rural regions have grown on average 30 percent. Therefore, this year if export enterprises receive orders from partners, the interest rate will even reduce 7 percent – 8 percent per year, much lower compared to actual ones.
Le Minh
Vietnamese
