Interest Rate Forecast to Be Much Lower in from Q 3

Most expert estimations indicated that the early quarter 3 would see significant drop in interest rate while corporate loan interest would fall less than expected.

 

A representative from a big commercial bank in Vietnam forecast that lending rate would massively go down to 15.5 percent in coming July and August.

 

He said that actually loan packages with reduced interest rates recently announced by banks were mainly for preferential businesses.

 

 “Banks in the first 6 months focused on handling bad debts, and once settled down, it will contribute to deep fall of interest rate”, he said.

 

The interest rate of Asia Commercial Bank (ACB) is currently at 17.5 percent. Director General Ly Xuan Hai supposed that interest rate reduction is an inevitable demand of the market. He added that since both banks and enterprises are looking forward to it, interest rate will see a more critical drop.

 

At present, according to Mr Hai, as banks are surveying capital consumption and profit margin of businesses to give out a reasonable interest rate, they cannot announce a large reduction.

In a recent seminar, Dr Tran Du Lich estimated that the reduction in interest rate in the past time was so slow. “If it takes more time, businesses will not be able to be saved”. He said that the target of credit growth at 15-17 percent set by State Bank of Vietnam (SBV) would be difficult to achieve since the enterprises would be hesitant to make loans when they worry about their ability to pay back.

 

Sharing with the press, Mr Pham Hong Hai, HSBC Bank’s Manager of Capital and Currency Market Division said that the SBV’s decision has been expected by the market and would help to reduce loan cost of individuals and enterprises. It will contribute to economic growth and is critically important when GDP in quarter 1 only witnessed a growth rate of 4.1 percent.

 

In recent time, the interest rate in the inter-bank market has also gone down. For the duration less than 3 months, inter-bank has given out the rate of 12 percent. Thus, SBV’s reducing interest rate is absolutely reasonable when narrowing the gap between deposit interest rate and the actual rate in the market.

 

Meanwhile, concerning application of loan interest rate ceiling instead of deposit interest rate, Mr Vu Thanh Tu Anh, Research Manager of Fulbright Economics Programme, said that both of them shouldn’t be applied since they will distort the credit market. 

 

Actually, many banks have reduced loan interest rate since SBV announced a decrease in deposit interest rate on April 11th.  Eximbank is the first to announce that it will spend VND 6,000 billion with interest rate of 16.5 percent/year, beginning April 11th for exporters, SMEs, individuals borrowing for production, assistance for low-income people to buy houses.  On the same day, BIDV also holds a press conference about its interest rate reduction. In particular, for short term loans, the interest will be only 14.5 percent, down by 2.5 percent per year against before; for medium and long term, the rate is 16-18 percent per year, down by 1.5 percent. The rate for short term loan of agriculture and rural development sector, SME, supporting industry is only from 14 percent per year while that for production and export assistance is from 13.5 percent per year.  Recently, TienPhong Bank has also implemented a programme spending VND1,500 billion lending at preferential interest rate for high-tech, export trading sectors etc and some good projects are given the lowest rate of 14 percent.

He said that application of loan interest rate will eliminate criteria to categorize customers and assess risks of banks. The bank’s current only tool is interest rate, which will be up or down together with the risky level of enterprises. At the same time, application of deposit interest rate will be unfair for depositors, especially those with small and medium accounts (large accounts’ owners will still be granted with higher interest rate and their desired loan interest rate).

 

Anh said that both of interest ceilings should be applied or eliminated, but not one of them, which would certainly cause problem. If applied, deposit ceiling should be 12 percent and a reasonable profit margin should be at 3-4 percent, the highest interest rate can reach 15-16 percent.

 

Application of only one interest rate ceiling will bring benefits to a group while the poor, small and medium enterprises (SMEs) will suffer loss. Upon elimination of interest rate ceiling, effective restructure of bank system will result in no interest race since SBV has anticipated which bank is weak and measures to tackle that.