Vietnam Banks Cut Lending Rates to Support Economic Growth

Tuan Minh

11:54 17/10/2016

BizLIVE - A number of Vietnamese banks have slashed loan interest rates to support firms and boost economic growth.

Vietnam Banks Cut Lending Rates to Support Economic Growth

Several banks have moved to cut lending interest rates. Photo: VnEconomy

A number of Vietnamese banks, led by state-controlled Vietcombank, have reduced interest rates on short-term loans for several industries in the context of abundant liquidity in the banking system, aiming to aid the country’s economic growth.
Vietcombank, officially known as Bank for Foreign Trade of Vietnam, has offered rates of 6% per year at most for short-terms loans given to companies of five prioritized sectors and start-ups, down one percentage point.
The five sectors include agriculture, export, supporting industries, small- and medium-sized enterprises, and hi-tech.
The Hanoi-headquartered bank will also adjust down interest rates of existing outstanding loans having short tenures to 6% per year at the maximum.
This cut will be applicable through the end of this year, said Vietcombank Chairman Nghiem Xuan Thanh, adding loan rates in 2017 will depend on macroeconomic conditions and the State Bank of Vietnam’s monetary policies.  
Vietcombank Chairman Nghiem Xuan Thanh. Photo: 
The cut could reduce the bank’s revenue by 100 billion dong ($4.5 million). However, the bank will make cuts to operating costs to offset the reduction, Thanh tipped.
Before Vietcombank, LienVietPostBank axed its interest rates by between 1.0 and 1.5 percentage points for new loans, starting October 15. The move is in response to the central bank’s call to reduce lending rates to support enterprises and curb inflation.
Vietcombank’s chairman was not worried that the rate cut in large-sized lenders would cause deposit movement toward smaller banks which offer higher deposit rates to court depositors.  
Four state-run banks namely Vietcombank, Agribank, BIDV and VietinBank now account for 50% of the total capital mobilization of the whole banking system. Loan rates will surely go down if the four cut rates synchronously, Thanh said.
Further, the central bank assigns credit growth quota to each bank, therefore, small banks will not lure deposits when they meet the lending room.
Vietcombank’s lending rate cut is expected to prompt other banks to follow suit. “Liquidity at banks is profuse, thus there is room for further cuts,” Thanh added.
Nguyen Duc Thanh, director of the Vietnam Economic Policy and Research (VEPR), said that the good liquidity will help pull down loan rates. “This is a good timing for gradual reductions in loan rates, when there is no longer pressure among banks to race for capital.”
Similarly, financial expert Nguyen Tri Hieu Loan forecast loan rates to go south from now to the year-end if major banks make pioneer moves to cut rates.