Gap between deposit and lending interest rates remains high in Vietnam

Financial specialists said that thanks to the significantly high difference between deposit and lending interest rates together with enormous banks’ high profits since early this year, the lending interest rate should be now adjusted gradually so as to ease pressures on businesses.
Negotiable lending rates in dong have recently been relaxed for several privileged sectors such as production, exporting, agriculture and rural development. Saving interest rate in dong, meanwhile, is capped at 14pct p.a. Thus, financial experts assumes that significant difference between mobilisation and lending rates combined with enormous banks’ profits has raised the necessity of gradual lending rate cuts so as to ease
pressures on businesses.

A deputy director of a small-scaled HCM City-based commercial bank expressed worries over potential difficulties complying with the prescribed deposit interest rate cap. Also, lowering lending rates to 17pct-19pct would adversely hit its operations as well as the year’s profits. Lending rates in dong, therefore, would hardly experience a steep decline in the near future. What is more, the lender has almost run out of room for credit growth and available funds, which would then indicate further competition for capital mobilisation from market 1 (residents and economic entities).

In fact, the first days of implementation of the mobilisation cap rate have seen accusation of several lenders. It stands to reason that a flat mobilisation rate would mean tough competition for capital mobilisation particularly for small and medium-sized banks, which could then make immediate lending rate cuts far beyond businesses’ expectation.

Of similar opinions, deputy general director of another HCM City-based bank affirmed large banks’ advantages of lowering the rates over small ones. Hence, manufacturing and exporting enterprises of feasible business plans would be the first to enjoy the favourable rate of 19pct and further decreases will soon to come afterwards.

Recent days have seen plenty of commercial banks’ quoting dong lending rates of 17pct-19pct in the wake of the Governor’s instructions. Still, such tempting rates have not yet been widely applied to every business and most of which are for short-term loans even at such large lender as Agribank.

Short-term loans at this credit institution have been charged at 17pct-19pct since 12 September and those for households in agriculture-forestry-fishery sector enjoy the lowest compared to 18pct for others. Similarly, the minimum rate for mid-term loans to these households and other sectors is 18.5 percent and 19.5pct for respectively.

Long-term financing, however, is charged at 20.5 percent for all types of borrowers.

Keeping a lid of 14pct on mobilisation rate, what the central bank actually aims at is to facilitate lending rate cuts to 17pct-19pct. Yet, the cap rate combined with rising ten sion on inflation has taken heavy toll on mobilisation, which could justify modest decreases for several prioritised sectors.

Nonetheless, Dr Cao Sy Khiem, former Governor affirmed remarkable difference between the expected dong lending rates of 17pct-19pct for privileged sectors and mobilisation ceiling rate of 14pct. The gap of between 3pct and 5 percent is expected to assist banks in expenses absorption as well as likely profitability. That is not to mention loans other than prioritised ones would still suffer the rates of between 20pct and 22pct. A gradual relaxing of interest rates for all borrowers is, therefore, a roadmap for all banks in the times to come. – Vietbiz24

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam interest rates

Posted by VBN on Sep 16 2011. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry