Interest rates easing

As promised by the new Governor of the State Bank of Vietnam Nguyen Van Binh when taking office, the interest rates offered by a number of commercial banks have been lowered.

However, there are still quite a few doubts about enterprises’ capability to approach the supportive interest rates as listed, while the story of wheeling and dealing to surpass ceiling interest rates has been well known.

Lower interest rates to tackle capital pressure

In response to the Governor’s instruction to lower the deposit interest rates, a series of banks including Techcombank, Eximbank, BIDV, VPBank, ACB and SHB, repeatedly announced their lowering of interest rates, leading to headlines about “the race for interest rate lowering.” This reveals that commercial banks have reduced interest rates in a movement instead of imposing the lending interest rates of up to 22 percent which far exceeds quite a few enterprises’ affordability.

More notably, the drastic move from the State Bank of Vietnam (SBV) when promulgating Directive 02/CT-NHNN dated 7 September on the implementation of the regulations on mobilization interest rates of dong and US dollars shows its great determination. According to the Directive, the SBV will strictly punish the leaders of violating credit branches and organizations.

This Directive provides that not only domestic banks, but foreign credit organizations and bank branches shall be punished if they offer deposit interest rates exceeding the regulated rate of 14 percent.

During the very first days the SBV applied the new measure, all the commercial banks obediently implemented Directive 02 with due attention. The lowered interest rates immediately had a good impact on the stock market during recent days when the VN-Index witnessed an increase from 390 to 460 points. At a larger scale, the decrease in interest rates helps lessen the thirst for capital of enterprises and release capital flows into investment and production. However, it is too early to affirm that the interest rates will be lowered quickly enough at appropriate amplitude suited to the purpose of improving capital access for enterprises and citizens.

Are interest rates really lowered?

The movement toward lowering interest rates has been known, however quite a few people are suspicious while many preferential credit packages cannot find their way to needy enterprises at the supportive interest rates. There exist doubts about criteria for granting capital. Factual disbursement is not published. Whether or not credit organizations grant enough capital as registered is not examined. Many enterprises have to cover additional fees in order to approach capital more easily, while the rest are still subject to high interest rates due to failure to meet requirements.

Even worse, the supportive package offered by commercial banks is of several trillions of dong, which is small compared to the huge capital demand of over 600,000 enterprises for investment and production.

The examination and control of violation is even more difficult since commercial banks can avoid being punished by recording the deposit interest rates of 14 percent only on paper.

On 7 September, for the very first time, the SBV officially admitted in a written document commercial banks’ violation in exceeding ceiling deposit interest rates. However, none of the violating banks have been named and fined. Economic expert Pham Chi Lan believes that the new regulations of SBV seem to be strict, but implementation is difficult because such punishments are more of administrative procedures. Particularly, SBV can either dismiss or suspend leaders of state banks who are appointed by the State only. Dismissal or suspension of general directors of joint stock banks, non-state banks or directors of foreign bank branches cannot be directly done by the State. According to regulations of some commercial banks, General Directors can be appointed and dismissed by the Board of Management only.

Ms Tran Thanh Hoa, General Director of ABBank, says that the Government’s policy on lowering the interest rates is right, but the roadmap needs to be cautious and it will take some more time before the deposit interest rates are brought to the rate of 17-19 percent as expected. This is attributed to such factors as high inflation and fluctuations in the gold and foreign currency markets.

In fact, the range of beneficiaries from the supportive package is not wide. According to General Director of VPBank, the limit of mobile capital lending at the preferential interest rates of 17-19 percent is VND3,000 billion. However, beneficiaries include enterprises involved in agricultural production and import and export of farming products.

There remain numerous difficulties for the policy of lowering interest rates to be implemented effectively and sustainably. Enterprises and people are still waiting for further specific measures from SBV to support them and to untie sources of mobilized capital.

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