Late in the afternoon of July 31, 2019, all four state-owned commercial banks announced to reduce the short-term lending interest rate in dong for priority areas by 0.5 percent per year to a maximum of 5.5 percent per year, which was lower than the State Bank of Vietnam (SBV)’s regulation of one percent, applied from August 1, 2019 to the end of December 31, 2019.
Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) announced that it would apply the short-term lending interest rate in dong at a maximum of 5.5 percent per year, apply to all existing loans and new loans in the following areas: Agricultural development; Goods business exportation; Business of small and medium enterprises (SMEs); Development of supporting industry; Enterprises applying high technology; High-tech agriculture; Start-up businesses.
Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) also announced to reduce the interest rate ceiling to 5.5 percent per year for three priority areas: business exportation; Development of supporting industry; High technology enterprises. Besides, from August 1, 2019 to December 31, 2019, BIDV implemented two credit packages with a scale of up to 70 trillion dong with an interest rate of 0.5 percent per year lower than the current rate. In particular, the credit package for SMEs is 60 trillion dong; Short-term credit package for micro enterprises and start-up enterprises is 10 trillion dong.
Similarly, Vietnam Bank for Agriculture and Rural Development (Agribank) and Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) also announced to further reduce short-term lending interest rate in dong for priority sectors to a maximum of 5.5 percent per year.
This is the second time in 2019 that state-owned commercial banks pioneered lower lending rate for priority areas. Previously, on January 10, 2019, all four banks simultaneously reduced short-term lending rates by dong for priority sectors to six percent per year at the request of SBV at Conference to deploy banking sector in 2019.
However, the reduction of interest rate of state-owned commercial banks did not receive the response of commercial banks. However, this reduction of state-owned commercial banks is expected to put pressure on other commercial banks if they do not want to lose customers.
One percent is a big difference in lending rates in the current context. Moreover, all four big commercial banks are accounting for more than 50 percent of the credit market share, so if commercial banks do not decrease, the ability to lose customers is very high.
In fact, there were a number of commercial banks who would raise their lending interest rate. But according to an expert, commercial banks had to calculate carefully the reduction, depending on the financial capacity of each bank because commercial banks do not have the advantage of the Treasury’s low interest rate demand deposits.
The next reasonable step
Assessing the move to reduce the lending interest rate this time by banks, the expert said that it was reasonable.
Conditions to reduce lending rate arrived. Currently many central banks around the world expressed their intention to cut interest rate to support economic growth. At the meeting on July 31, the Federal Reserve System (Fed) cut the basic interest rate by 25 percentage points and left open the possibility of cutting interest rate again this year.
In Vietnam, the liquidity of the banking system was also maintained at a relatively abundant level, creating conditions to lower the interbank interest rate level. In addition, SBV also reduced 0.25 basis points of seven-day bill to 2.75 percent from July 19 after maintaining the three percent per year from October 10, 2018.
“This is a reasonable step in the context that inflation is likely to be controlled below the target, while production and business activities, especially exports are forecast to be more difficult due to negative impacts from the US-China trade war. Therefore, it is necessary to reduce interest rate to support businesses, thereby boosting growth”, said the expert.
Not only that, reducing lending rate was also reasonable when banks continued to earn huge profits in the first half of this year. For example, Vietcombank achieved pre-tax profit of 11.303 trillion dong in the first six months of this year, up nearly 41 percent compared to the same period last year and fulfilling 56 percent of the year plan. For VietinBank, despite many difficulties in credit growth due to the lack of capital, the bank still collected 5.335 trillion dong in pre-tax profit in the first half of this year. BIDV also collected 4.772 trillion dong in pre-tax profit, though still lower than the same period last year.
Banks with large profits mainly from credit activities showed that the interest rate reduction was still available. Therefore, further reduction of lending rate is also necessary to develop the economy”, said the expert and expected other commercial banks to reduce lending rate.
