Wave of lending interest rate decline expected

02-Mar-2021 Intellasia | Nguoi lao dong | 5:02 AM Print This Post

Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) announced to continue lowering lending interest rates to individual customers and businesses in the context when the Covid-19 epidemic remains complicated. This is the first bank made announcement to reduce interest rates after the Lunar New Year holiday.

According to Vietcombank, this is the sixth consecutive time this bank has cut lending interest rates to continue supporting individual customers and businesses in order to reduce the difficulties in the Covid-19 pandemic. the level of reduction for all existing and new outstanding loans in three months from February 22nd to May 22nd.

Specifically, Vietcombank reduces up to 10 percent of the interest payable for businesses seriously hit by the Covid-19, 5 percent of the interest payable for the remaining customers affected by the epidemic.

Individual customers are also entitled to a 0.2 percentage point decline when borrowing capital for production and business before bearing the impact of the epidemic. It is expected that the total customers enjoying interest rate reduction this time is about 105,000 with a credit scale of 350 trillion dong, accounting for more than 40 percent of Vietcombank’s outstanding loans.

In the trend of the continuous decline in input interest rates in most commercial banks, the market expects the interest rate reduction of Vietcombank this time to spread to many other banks, helping businesses reduce financial costs.

As noted by reporter of Nguoi Lao Dong newspaper, many businesses still have to borrow money from banks at fairly high interest rates in the context of the epidemic situation, their revenue and cash flows have both been significantly affected.

Nguyen Quoc Anh, director of Duc Minh Rubber Company Limited, cum Chair of the HCM City Rubber Plastic Association said that his company is borrowing bank loans at a short-term rate of more than eight percent per annum and medium and long-term rates of about 10 percent per annum. These are fairly high interest rates in the context when the pandemic continues to influence businesses’ production and business activities.

“I have contacted the bank and asked for a reduction in lending interest rates to reduce the financial pressure but there is no response although we are regular customers, have always paid interests fully and on time. Many businesses in the Association are also borrowing bank credit at relatively high interest rates, and it is even more difficult for small and micro businesses,” Nguyen Quoc Anh concerned.

Nguyen Khoa Luan, director of Anh Viet Tourist Hop On Hop Off Vietnam company (project owner of the double decker tourist bus), said that although tourism industry continues to suffer from the epidemic outbreak before the Lunar New Year but his company is still borrowing bank loans for investing in the double-decker bus fleet and maintain operations at approximately 10 percent per annum. “The market is experiencing sharp decline in both international and domestic tourists. Maintaining the operation if business to generate revenue in this context is extremely difficult but we are still paying about 10 percent per annum interest rate for out bank loans.

Chair of the Rubber Plastic Association said that in the past, it took 30 days to collect money after the sale, but now it takes 45 60 days or even more than that. Since the capital rotation is very slow, business really need banks to lower lending interest rates in order to bear less financial pressure.

“Finance is the core source of businesses, particularly in the context when the Covid-19 pandemic brakes the cash flows of many businesses. If interest rates are low, businesses will be willing to borrow capital to stabilise their cash flows, thereby having the opportunities to maintain and recover their production and business,” said” Nguyen Dang Hien, general director of Tan Quang Minh Manufacture and Trade Company Limited (Bidrico).

In the report updating the business results in the fourth quarter of 2020 of the Data Analytic Services of FiinGroup said that businesses in financial area (including insurance, commercial banks, financial services) recorded fairly good revenue and profit growth in the fourth quarter and in the whole year 2020.

Specifically, the banking industry, the profit growth mainly comes from the Net Interest Margin (NIM) expansion because the inadequate lending rate reduction compared to savings interest rates, the lower risk provisioning than actual requirement due to Circular 01 on restructuring debts and exempting/reducing lending interest rates for businesses hit by the Covid-19 epidemic.

Many businesses concern when looking at the gradually decreasing savings interest rates and banks’ big profits while lending interest rates remain high.

However, leaders of some banks said that the downtrend of savings interest rates from the end of 2020 until now needs some time to impact on lending interest rates and the lending rates in 2020 have significantly decreased.

Financial expert Dr Can Van Luc also agreed when saying that there should be more time for lending interest rates to go down but basically, lending rates have fallen by about 0.5 2.5 percentage points in 2020, corresponding to the reduction of savings interest rates. The NIM of commercial banks is currently about 2.6%, similar to 2019′s NIM and is not very high.

“Businesses always expect lower lending interest rates to support business activities. However, lending rates are also influenced by other factors such as inflation expectations, input interest rates, the risk level of the economy and of each business in need of loans, and transaction costs. All these four sectors are at a higher level than the region and the world, so the interest rate level of Vietnam is still slightly higher than the region, said Dr Luc.

Nevertheless, interest rate is currently not the bottleneck for business operations when the credit growth in2 020 was still about 12 13%, which showed that the capital demand and absorption of the economy remained fairly good. Dr Luc said that if the interest rates are too high, cash flows will flow to other investment channels when the inflation pressure may be higher than last year. the liquidity of banks is currently fairly abundant and if the businesses are good with healthy finance, commercial banks even have to compete in offer lending at good interest rates.


Category: Finance, Vietnam

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