Interest rate cut to boost credit growth

06-Oct-2020 Intellasia | Thoi bao Ngan hang | 6:02 AM Print This Post

After the State Bank of Vietnam (SBV) announced the decision to cut operating interest rates from October 1st, many banks have lowered their deposit rates for short terms, such as Kien Kong Commercial Joint Stock Bank (Kienlongbank), where the rates are only 3.55 percent per annum for one-month term, 3.75 percent per annum for two-month term, 3.95 percent per annum, down by a maximum of 0.6 percentage point compared to the previous time. Similarly, at Saigon Thuong Tin Commercial Joint Stock Bank (SBV), the rates for terms from one to two months have significantly been lowered from 4.15 percent to 3.4 3.5 percent per annum, and the rate for terms of three months has been cut from 4.25 percent to 3.6 percent per annum, etc.

Some banks have also lowered long-term deposit rates. For example, at Nam A Commercial Joint Stock Bank (NamABank), from October 1st, depositors enjoy a rate of 7.1 percent per annum when depositing capital on terms from 14 to 17 months, while the rate for terms of less than six months is 3.95 percent per annum.

According to deputy general director of Vietnam International Commercial Joint Stock Bank (VIB) Le Quang Trung, the decision to cut operating rates of the SBV is completely appropriate in the context when businesses are facing difficulties in regenerating production and business capacity and encountering supply-demand imbalance due to supply disruption, etc.

From a banking perspective, the operating rate reduction creates conditions for banks to access capital from the SBV at lower interest rates. On that basis, banks can offer better lending rate levels to customers, thereby more positively promoting the credit growth. Particularly, the lower lending rates to five priority areas the core sectors of the economy will effectively support the economic growth in the near future.

Talking to reporter of Thoi bao Ngan hang, general director of Orient Commercial Joint Stock Bank (OCB) said that the SBV’s decision is not surprising as banks have been actively lowering deposit rates in line with the general direction of the SBV to gradually cut down financial supporting costs to businesses but ensuring stable business activities and liquidity. “Currently, since the necessary conditions for lowering interest rates were gathered, the SBV decided to adjust operating rates to suit the market movements and create a leverage to boost credit growth,” said Tung.

According to assessments of analysts at Bao Viet Securities Company (BVSC), the actual impacts on the economy of the SBV’s interest rate reduction have become more limited in the later cuts. Because the system liquidity since May has always been in a positive state, causing the interbank rates to fall to record low levels, so banks do not have much need to borrow capital via the Open Market Operations (OMO) or rediscount channel from the SBV. “It means that such interest rate cut will not have too much effect in further reducing lending rates,” BVSC’s analysts mentioned.

However, VIB’s deputy general director has a more optimistic view. According to Trung, when the rates were nine to 10 percent per annum, people did not consider investing or borrowing money to do business, but when the rates fall to six to seven percent per annum, they may reconsider because the financial problem is different. He added that the move to cut operating rates will have a positive impact on the economic growth in the near future.

Sharing similar view, OCB’s general director Trung said that the SBV’s recent decision will surely boost the credit growth, but the level depends on the confidence of businesses, people and the economy such confidence depends on factors that are difficult to predict but are crucial for many issues, they are the recovery of the economy as well as the control of the pandemic and the Covid-19 vaccine production in countries around the world, etc.

Trung also expected that when the pandemic is controlled in many countries, including Vietnam, the credit growth in the fourth quarter can accelerate, with the support from the low deposit rate level. “In the most positive scenario, the credit in 2020 may grow by 10%, while in the least positive scenario, the credit growth is no less than eight percent,”, said Trung.

Despite saying that the interest rate reduction will not considerably affect the credit demand, experts mentioned that the efforts to lower interest rates will create positive sentiment, partly support the economic recovery.

“Vietnam’s policy to lower interest rates does not help expand the credit growth, but greatly helps release the debt repayment pressure. If we control inflation well in the near future, there will be plenty of room to reduce interest rates, said Pham The Anh, Head of Macroeconomic Department, National Economics University.

 

Category: Finance, Vietnam

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