Adjusting Loan Interests to a Lower Rate

According to SBV Deputy Governor Nguyen Dong Tien, from early 2013, the SBV has actively implemented measures to curb inflation and remove difficulties for business operations in order to ensure a reasonable growth rate. With the efforts of ministries, the target of curbing inflation, after 4 months, has shown positive signs. The consumer price index (CPI) rose 0.02 percent in April compared with the previous month, rising 6.61 percent compared with the same period in 2012 and increasing by 2.41 percent in the first 4 months of the year compared to the end of 2012. Along with the liquidity improvement in the banking system, the monetary and financial market remains stable. The deposit rates and lending rates of the credit institutions continued to decline. The low interest rate of the interbank market remains stable, foreign exchange rate is kept unchanged and the foreign reserves continue to grow at a high rate.

 

On the basis of fluctuations of world macro-economies and monetary markets, the SBV issued Decision 1073 and Circular 10, dated May 10, 2013, on continuing to implement measures to remove difficulties for business operations. Accordingly, the key interest rates including the refinancing and discount interest rates and the overnight rate in the inter-bank electronic payment and the rate of loans to finance short balances in clearing transactions between the SBV and commercial banks have been reduced by 1 percent. This is the benchmark interest rate for credit institutions, regulated by the SBV, to affect credit liquidity and availability of the commercial banks.

 

Circular 10 of the SBV regulates a decrease of short-term lending rates in VND from 11 percent to 10 percent per year to meet financial needs of specific sectors including agriculture and rural development, exporting, supporting industries, small and medium enterprises, and high-tech application. The short-term lending rates in VND of People's Credit Fund and microfinance organisations for business lenders are reduced from 12 percent per year to 11 percent per year.

 

According to Deputy Governor Nguyen Dong Tien, these measures comply with the monetary policies to achieve the government's goals. In the future, based on the changes in macro-economic situation, inflation rates, the ability to control inflation and the impacts of internal and external factors on the banking operations and the economy, the SBV and the ministries will observe and come up with timely solutions to support economic growth, control inflation, ensure deposit interests, support business operations and ensure safe and effective banking operation.

 

To address public concerns on savings interest, Mr Tien said, the bank is still the safest place for investors and depositors because the SBV will guarantee a certain level of profitability for them.

 

Notably, the SBV used to reduce the ceiling deposit rate at a favourable macro-economic environment, but now the SBV decides to tune down a key interest range and keep the ceiling interest rates unchanged at 7.5 percent per year.

 

According to Ms Nguyen Thi Hong, Head of the Monetary Policy Department, the SBV does not reduce the ceiling interest rate because inflation in April compared with the same period in 2012 was 6.61 percent and the forecast inflation rate in 2013 is about 6.5 percent. Therefore, the ceiling deposit rate of 7.5 percent was in line with the forecast inflation rate, ensuring the benefits of depositors.

 

However, according to Ms Hong, this is the maximum rate; credit institutions may consider reducing the interest rates given their financial ability, liquidity, credit costs and profitability goals and business strategies. The facts show that some financial institutions have reduced interest rates to below 7.5 percent. This is seen as a market regulation, and the banks that still raise funds after lowering the interest rates show their reputation to the depositors.

 

According to Mr Tien, the alternative of reducing the operating interest rates rather than the ceiling rates helps make the least negative impact at this moment. The interest adjustment of 1 percent lower than the current rate is necessary and acceptable in the short time, and it is likely to be more flexible in the long term.

 

Under the direction of the SBV, the credit institutions have been actively reducing the previous lending rate to below 15 percent, until the proportion of loans with interest above 15 percent was only 14 percent. At the request of the Governor, the credit institutions also pledged to reduce the interest rate of the previous loans to 13 percent. This will reduce the business profitability of the banks, but contribute remarkably to the credit solutions for economy. The SBV will continue to monitor and evaluate the difficulties to come up with business solutions. The credit institutions would learn how to find solutions to improve management efficiency and reduce costs to fix problems after lowering the interest rates.