The end of the year business season is in the peak months. This is also an opportunity for banks to boost capital lending, although credit growth room remains one of the limitations for some of them. Thus, cutting interest rates is considered one of the positive conditions for banks to accelerate lending.
Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) and Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank) have simultaneously reduced lending rates for all businesses by 0.5 percent per annum, applicable in the last two months of the year. For priority areas, the maximum interest rate is five percent per annum for short-term loans, 1.5 percent per annum less than the regulation of the State Bank of Vietnam (SBV).
Vietcombank’s Chair of the Board of directors (BOD) Nghiem Xuan Thanh said that this is the biggest interest rate cut ever, because it is applied to all businesses instead of just to priority areas as before.
In addition to the group of state-owned banks, private joint stock banks such as Export Import Commercial Joint Stock Bank (Eximbank), Viet Capital Commercial Joint Stock Bank (VietCapitalBank), Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank), Asia Commercial Joint Stock Bank (ACB), Military Commercial Joint Stock Bank (MB), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), etc. have also lowered short-term lending rates by 0.5 percent to one percent for small and medium-sized enterprises (SMEs), with particular priority in the manufacturing and export sectors.
The abundant liquidity is a condition to cut input costs. The interest rate reduction this time is expected to stimulate borrowing needs of businesses at the end of the year. ACB has further cut deposit rates by 0.2 percent per annum for long terms, and also lowered lending rates to seven percent per annum and more.
ACB’s deputy general director Tu Tien Phat said that in the end of October 2019, in order to timely serve individuals and businesses’ capital needs for production and business activities in the last months of the year and 2020 business plan, ACB has offered a preferential credit package of up to five trillion dong, which is disbursed until the end of 2019 at lending rates from 7.5 percent per annum.
ACB’s credit by the end of September 2019 grew by 11.1 percent out of the 17 percent credit growth limit assigned by the SBV in 2019. Thus, ACB still has room to expand credit in the fourth quarter of the year, but it is not very large.
Nguyen Dinh Tung, general director of Orient Commercial Joint Stock Bank (OCB) said that since credit always increases rapidly in the peak business season in the fourth quarter of the year, cutting interest rates will positively influence credit. At OCB, the credit growth room left is insignificant, but lending activities are still constantly rotating because OCB has been promoting retailing.
BIDV Securities Company (BSC)’s report on the sector’s prospect in the fourth quarter of 2019 stated that the credit growth of the sector in the first half of the year was 8.64%, lower than the 9.52 percent in the same period of 2018. As of September 30th, the credit growth was 9.4%, according to the SBV Governor’s update at the ongoing National Assembly session). The lending structure still focuses mainly on agriculture, industry, construction and trade the government’s priority areas for lending.
The M2 money supply (savings) by the end of September 2019 grew at an accumulated level of 8.6 percent compared to the beginning of the year, similar to the credit growth rate. According to BSC, the well-controlled credit supply and demand has helped stabilise interest rates (average lending rate is ranging from six to nine percent per annum for short terms, and nine to 11 percent per annum for long terms).
Regarding the sector’s prospect in the last quarter of the year, BSC forecasted that the credit growth rate of the entire system may reach 12-13%, mainly due to the decline in credit demand in many business lines that are having difficulties, along with the tightening of lending to risky areas. The credit demand of individual customers may be affected due to economic slowdown.
According to financial analysts, the outstanding credit growth this year is unlikely to reach the target. Viet Dragon Securities Company (VDSC) estimated that with the current credit growth rate and the credit limit assigned for each bank, this year’s credit growth may be just 13.2%, because the possibility of having credit growth room expansion of banks is very small.
Many banks which have run out of credit growth room have proposed the SBV for more room to develop credit in the end of the year peak business season, but approval is unlikely to be issued. According to the SBV’s orientation, from the beginning of 2019, banks having good asset quality can easily get credit growth room loosening. This happened in mid-2019, when many banks met Basel II international standards. However, the SBV only expanded the room for some banks such as ACB (from 13 percent to 17%), VPBank (from 12 percent to 16%), Techcombank (from 13 percent to 17%) and MB (from 13 percent to 17%).
Financial expert Prof Dr Tran Hoang Ngan said that the current credit growth level is positively support the economic growth to maintain a high level. This shows that banks’ capital is being used more and more effectively and it is not necessary to reach the credit growth target of 14%.
Controlling credit growth at an appropriate level, according to financial analysts, is a positive condition to stabilise interest rates in 2020.
