More and more businesses were asking for loan interest support. To do this, perhaps, a vast support package from the government with an entirely new way of lending was necessary.
Enterprises dreamed of support credit packages
As tourists raced to cancel the tour, nearly 80 percent of staff had to take a break, Vietravel Company had a massive loss in the first six months of the year. There was no revenue, but each month the company still had to pay nearly 7 billion dong of interest (including bank interest and corporate bond interest).
According to Huynh Phan Phuong Hoa, deputy general director of Vietravel Company, to pass this unprecedented difficult period, businesses were in desperate need of support, especially in terms of capital, including lowering lending rates of existing and new loan. The recent reduction of interest and debt rescheduling by banks was not enough to help the company recover from difficulties.
Dinh Minh, Chair of Migroup Board of directors, also said that in the current context, the most suitable lending interest rate for businesses was zero percent to three percent per year.
Enterprises in many industries, which had been heavily damaged by the epidemic, such as resort real estate, aviation, tourism, and transportation, also looked forward to interest-subsidised credit packages from the government to extend the period of taking a breath.
Recently, the Vietnam Association of Aviation Enterprises proposed to allow airlines to borrow a credit package of 25 trillion dong to 27 trillion dong to support three-year to four-year interest rates. Previously, the Young Business Association offered to reduce the lending interest rate to five percent per year, even zero percent per year. The Tourism Association suggested the government to provide support credit packages with exclusive interest for businesses severely affected by Covid-19.
Can Van Luc, Chief Economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), said that sharper interest support for businesses severely affected by the epidemic was necessary, especially the large one with several employees operating in essential areas. However, in order to do this, it was not only the voluntary participation of commercial banks as in the past time, but it was necessary to use funds from the budget. For instance, the budget could subsidise interest for these businesses at an interest rate of about four percent year.
However, the information on special credit packages, including interest subsidy for loans, the method to provide the package, the size of the loan package, the beneficiaries, and so on, were controversial. Not to mention, this year’s budget would undoubtedly have a substantial deficit, which would have to be calculated very radically.
Only relying on banks, interest rates were challenging to fall deeply
Deputy general director of a joint-stock commercial bank said that the deposit/lending interest difference of banks had been reduced very low. Banks could still further reduce lending interest rates by further lowering deposit rates, but the reduction was not much, up to only about 0.5 percent to one percent.
Banks still had to pay the deposit interest rate for people at five percent to seven percent per year, so bringing the lending interest rate to four percent to five percent per year was very difficult without the support of the budget. In fact, very few businesses needed to borrow money because production was stagnant, but bank loans, though they were cheap, still had to pay interest.
Enterprises were still producing and doing business stably. With the need to borrow capital, they do not complain much about interest rates. The enterprises that complained the most were those that were ineligible for loans, mainly due to bad debts before Covid-19, no collateral, not proving feasible projects, not allowing banks to manage the cash flow, said the deputy general director.
In a document answering questions to the voters of Gia Lai provinces and Ca Mau provinces, the State Bank of Vietnam (SBV) Governor Le Minh Hung affirmed, to support businesses and people, from the beginning of the year until then, SBV had repeatedly cut the operating rate by three times. At the same time, there were many measures to encourage banks to reduce interest rates and support customers. In the middle of this week, SBV had postponed another year to tighten short-term capital for medium and long-term loans so that commercial banks could have more cheap capital to support customers.
The State Bank had sharply lowered the operating interest rate; the lending interest rate was also reduced by 0.5 percent to two percent per year by commercial banks. However, the lending interest rate, especially the medium and long-term interest rate, was still quite high (at nine percent to 11 percent per year). Nevertheless, according to Pham The Anh, an economic expert, the capacity to further lower lending interest rates in the near future was quite limited. Compared to inflation, the current deposit rates hardly had opportunities to reduce further, as the deposit rates were only one percent to two percent higher than inflation. Because the deposit interest rate was forced to fall too sharply, the money would flow to other channels, warned The Anh.
Many economic experts believed that lowering interest rates could not be considered as the primary monetary policy space in the current period. Lowering interest rates could help businesses reduce costs, but even when the interest rate was cheap, businesses still had to pay interest. Currently, the economy was facing difficulties; the output was not available, so businesses had no need to borrow. Therefore, lowering interest rates was not yet able to stimulate credit.
Only relying on banks, it was challenging for interest rates to fall deeply. The interest rate could only reduce further with the support from the state budget, said Nguyen Duc Do, an economist.
