In addition to the solutions to remove difficulties for production and business under the government’s policy, the State Bank of Vietnam (SBV) on March 17, adjusted the reduction of operating interest rates, deposit and lending interest rates ceiling, and at the same time, increased deposit interest rates in compulsory reserves in dong of credit institutions at SBV from 0.8 percent per year to one percent per year, while keeping the required reserves ratio unchanged at three percent.
The SBV’s decision to reduce interest rates was considered timely and proactive by experts in accordance with the domestic and global market conditions, thereby enabling commercial banks to lower interest rates. lending rates, allowing the businesses to access cheaper capital, gradually remove difficulties to overcome the pandemic. In particular, keeping the compulsory reserve ratio and raising the interest rate of the mandatory reserve deposits seemed to be suitable in the current context and time.
The obligatory reserve tool was used effectively in operating monetary policy
Regarding interest rates of compulsory reserve deposits, according to Bui Quang Tin, the compulsory reserve was one of the monetary policy management tools of SBV. The biggest goal of using these tools was still for macroeconomic stability, to maintain inflation at the target level, to support businesses to develop business activities, to be balanced and flexible to achieve many targets that the government had set, such as trade balance, gross domestic product (GDP), and so on.
Therefore, in recent years, compulsory reserve tools had been used together with others, including interest rates, exchange rates, open market operation (OMO) and credit limits, having helped SBV to manage and achieve the above targets in the most effective way. This increase of interest rate by 0.2 percent was also to help the commercial banking system to have more revenue from the reserve of its mobilised capital at SBV, thereby assisting the commercial bank to have good support conditions for businesses to overcome this pandemic.
Sharing the same views, Nguyen Tri Hieu said that, with the increase in interest rates for compulsory reserves, commercial banks having excess liquidity could deposit at SBV and enjoy one percent per year interest rates, thereby creating a basis to reduce capital costs and also reduce lending rates to support businesses. In the current situation, many companies were struggling to maintain their existence because the liquidity was increasing day by day. Therefore, it was not necessary to inject money through banks to reduce the required reserve ratio at this time,
In the report assessing the impact of SBV adjusting a series of operating interest rates from March 17, KB Securities Vietnam Joint Stock Company (KBSV)’s Analysis Department emphasized the remarkable point in this move of SBV was raising interest rates on compulsory deposits in dong to one percent per year (from 0.8 percent previously). This increase was to support banks ‘profits in the context of the impact of commercial banks’ income when implementing preferential credit packages (worth about 285 trillion dong), for businesses affected by Covid-19.
Regarding SBV’s keeping the reserve requirement ratio unchanged, Nguyen Tri Hieu affirmed that at this time, reducing the required reserve ratio was not necessary, when the banking system was abundant in liquidity, the credit demand of the economy was low. He said, pushing an additional salary into circulation through reducing compulsory reserves would reduce lending rates and financial costs for businesses. However, banks then had surplus capital while companies were struggling with liquidity.
Similarly, Bui Quang Tin also said that in reality, the capital demand of enterprises recently was still low, many businesses were operating moderately. Therefore, maintaining the reserve ratio this time also helped SBV widen the threshold to adjust policies in the near future when SBV recently issued a series of policies on reducing interest rates, in the context of complicated changes in the world economy.
Vo Tri Thanh also assessed the cautiousness of the authorities in lowering interest rates this time. This decreasing, on the one hand, ensure macro stability and, on the other hand, create more room to continue implementing policies to support businesses when moving to the pandemic-passing phase.
More comprehensive business support policies were essential
Besides, according to experts, supporting businesses that were struggling with epidemics was not only by interest rates or special credit packages but also by other more comprehensive policies. According to the report of KBSV, with high inflation, the room for SBV to continue lowering interest rates in the near future was not large. Instead, KBSV expected the government to step up fiscal stimulus policies, including extension, refund of paying taxes, fees, interest rates, insurance, or supporting the liquidity of businesses facing difficulties without affecting inflation.
Financial expert Nguyen Tri Hieu also said that at this time, it would be better to add other support solutions related to liquidity for surviving enterprises rather than calculating the interest rate reduction for new loans which would not make much sense when the demand for market expansion and new investment was almost absent.
According to the Monetary Policy Department (SBV), management agencies had carefully considered when adjusting the operating interest rates, ensuring the effectiveness of the policy after the balance following the macroeconomic background, the domestic and abroad financial market picture. The interest rate policies and measures that SBV had been implementing were aiming to create conditions for credit institutions to balance their capital better, timely and practically to support businesses and people that were facing difficulties due to the Covid-19 epidemic.
In the past few days, besides the move to reduce the interest rates simultaneously, lower the ceiling interest rates for short-term deposits and the ceiling interest rates for priority areas to support businesses and the economy, the banking industry had also taken the initiative and timely measures to help people and businesses affected by Covid-19 epidemic. Specifically, SBV issued Circular 01/2020/TT-NHNN dated 13/3/2020. Particularly, Circular 01 guaranteed the legal basis for instructing credit institutions and foreign bank branches to restructure the repayment term, exempt or reduce interest and fees, and keep the debt group for businesses and people who were damaged by the Covid-19 epidemic. The National Credit Information centre (CIC) and Vietnam National Payment Joint Stock Company (Napas) had also twice announced service charge reduction, which was the basis for credit institutions to reduce service fees for customers.
Responding positively to the direction of the government, SBV and commercial banks had actively introduced many solutions to support businesses, committed to lending with interest rates falling from 0.5 percent to one percent per year compared to the general interest rate level. According to the Department of Credit of various economic sectors, many solution packages were proposed by commercial banks, such as building and deploying preferential interest rate support packages, with a total value of about 285 trillion dong of credit packages for rural agriculture, small and medium-sized businesses, sectors affected by the epidemic; continuing to consider reducing interest rates on existing loans by one percent to three percent; reducing the new lending interest rate, with a reduction from 0.5 percent to 1.5 percent per year; continuing to consider without penalty interest and reduction of banking service fees.
In response to the call ‘All people participate in supporting the anti-epidemic of Covid-19′ of the Presidium of the Central Committee of the Vietnam Fatherland Front, 15 commercial banks had supported 140 billion dong, joining hand with The Communist Party of Vietnam and the State, to provide more resources preventing and controlling the Covid-19 epidemic, then ensuring social security, the safety of life and health of the people.
