In July 2019, a series of banks have raced to raise deposit rates. The intense competition to attract capital pushes lending rates up.
In particular, 12 banks are having long-term interest rates of over eight percent per year. Viet Capital Commercial Joint Stock Bank (Viet Capital Bank) offers an interest rate of 8.6 percent for customers depositting from 24 months or more without the requirement of value floor. Meanwhile, Tien Phong Commercial Joint Stock Bank (TPBank) increase the interest rate to 8.6 percent for the deposits of over 100 billion dong with 24-month term, pledging not to withdraw before maturity. Vietnam International Commercial Joint Stock Bank (VIB) also has an interest rate of 8.6 percent for customers depositing from 500 billion dong in 12-13 months.
Sai Gon Joint Stock Commercial Bank (SCB) raises the interest rate to 8.55 percent for 13-month term while Vietnam Public Joint-stock Commercial Bank (PVcomBank) offers rate of 8.5 percent for 13-month term of 500 billion dong deposits or more. The rate at Vietnam Export Import Commercial Joint Stock Bank (Eximbank) is up to 8.4 percent for 36 month term, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) 8.3 percent for 24-36 month term and Viet A Commercial Joint Stock Bank (VietABank) 8.1 percent term of 13-15 months.
In addition, some banks also issue deposit certificates, with high interest rates. Viet A Bank has recently issued deposit certificates with an interest rate of 9.1 percent per year, Saigon Hanoi Commercial Joint Stock Bank (SHB) with the rate from 8.6-8.9 percent per year, Joint Stock Commercial Bank of Lien Vietnam (LienVietPost Bank) 8.1 percent per year for terms of 18, 24 and 36 months. If customers choose online savings with enormous amount, the interest rate is even higher. Viet Capital Bank and Nam A Commercial Joint Stock Bank (Nam A Bank) are applying an interest rate of 8.7 percent for the 24-60 month term for online deposit.
Not only long terms but also short terms are also increasing. According to the survey, there are nine banks listing the seven-month term interest rate of over seven percent. In which, ranked first is Nam A Bank with the seven-month highest interest rate of 8.05 percent; Viet Capital Bank 7.8 percent; Bac A Commercial Joint Stock Bank (Bac A Bank) and National Commercial Joint Stock Bank (NCB) 7.6 percent; Bao Viet Commercial Joint Stock Bank (BaoViet Bank) 7.35 percent; Orient Commercial Joint Stock Bank (OCB) and VPBank 7.3 percent; Dong A Commercial Joint Stock Bank (Dong A Bank) 7.1 percent and Southeast Asia Commercial Joint Stock Bank (SeABank) 7.05 percent.
In July 2019, up to 15 banks have pushed the interest rate for five-month term to 5.5 percent.
The mobilising interest rate is relatively high, making the lending interest rates of banks increase.
According to the State Bank of Vietnam (SBV), the medium and long term lending rate is currently 9-11 percent per year. However, few customers can benefit from it. Enterprises stated that they were borrowing medium and long-term loans from joint stock commercial banks with popular interest rates from 12-14 percent, even with additional fees. This was the top high interest rate in the region.
The expectation that banks will reduce lending rates from now until the end of the year is unlikely. In addition to high mobilising interest rates, credit limits are also a major factor. Until now, many banks are running out of credit limit for the whole year.
Furthermore, it can also lead to the phenomenon of businesses being forced by banks to borrow at high interest rates. In fact, this happened at the end of 2018, when lending interest rates were pushed up by small commercial banks as a result of the due outstanding credit balance. Many businesses had to borrow with short term interest rates up to 11 percent per year.
The State Bank of Vietnam (SBV) also affirmed that it was necessary to prioritise lending for production and business, restricting consumer and real estate loans. However, the consumer and real estate loans often have a high interest rate, in order to ensure the profit, banks certainly do not want to reduce drastically the lending to these sectors. Thus, the concentrated capital for production and business is difficult to maintain sufficient. From now until the end of the year, increasing capital demand will affect interest rates.
In addition, there are other impacts on lending rates such as: Group V bad debts of banks as of the end of 2018 increased, world commodity prices, including crude oil were volatile and exchange rate climbed.
Meanwhile, data published by the Vietnam Chamber of Commerce and Industry (VCCI) showed that 37 percent of enterprises said that they had difficulty accessing capital sources, especially with small businesses. High lending rates always frustrated them. Accounting for over 90 percent of businesses in Vietnam were small and medium, outdated technology, high operating costs. With the current interest rate level, it reduced the competitiveness.
A small mechanical enterprise in Thanh Tri, Hanoi, lamented: “Mechanical industry profit is usually under ten percent per year, with long-term loan interest rate of over 11 percent per year as currently we still hesitate to expand investment because of high risk”.
And a manufacturer of vermicelli in Dong Nai calculated, spending on interest expenses of the company usually accounted for about 20 percent of the total capital. With the current interest rate, it made the capital costs increase by seven percent compared to the beginning of 2018.
For stable production, businesses have tried to cut down on unnecessary expenses, and actively sought support, trade promotion and payment term extension to ensure short capital turnover. However, the lending interest rate is high and businesses have difficulties to avoid.
High interest rates show no benefit, businesses will not expand or reduce production and business. If borrowing is required, costs will increase, resulting in reduced profits and budgetary remittances, reduced competitiveness, risk of losses, and high bankruptcy.
In contrast, the business report for the first six months of 2019 shows that many banks have high profits. According to the general Statistical Office, the gross domestic product (GDP) in this period increased by 6.76 percent, lower than 7.05 percent in the same period in 2018. In which, the two industries accounted for the highest proportion in the economy. The slowdown in manufacturing and processing industry and agriculture is the main reason for GDP deceleration.
