Banks cut rates for new loans amid low capital demand

A customer borrows at a bank in Hanoi. By the end of June this year, credit growth was only 4.03%, against 9.4% of the same period last year, the lowest credit growth in the past ten years. (Photo: VNA)

Banks have to lower lending interest rates to stimulate demand for new loans as credit growth falters and deposit interest rates have also dropped sharply.

BIDV recently announced to set aside 300 trillion VND for loans with a preferential annual interest of 0.5-2% lower than normal lending rates.

Pham Thi Van Khanh, director of BIDV's corporate banking pision, said they will specify conditions in the implementation of the low-interest loan package so as to help qualified firms access the capital.

A representative of Agribank said the bank has just adjusted lending interest rates lower for the sixth time. For loans aimed at production and business activities, the short-term lending interest rate is only from 5% annually, and the rate for medium- and long-term loans starts from 8% per year. These packages are part of a programme of 100 trillion VND and 500 million USD for corporate customers.

LPBank has also decided to expand the preferential credit package to 10 trillion VND for production and business loans in both urban and rural areas. Under the package, interest rates are from 7.5% per year for corporate customers and 8.5% per year for retail ones.

Surveys in banks such as VietinBank, Vietcombank, TPBank, Sacombank and MSB show preferential loan packages currently have interest rates from 0.5 to 2% lower per year depending on customer groups.

In addition, many banks have reduced operating costs to support firms through policies on exemption and reduction of money transfer service fees or reduction of import and export payment fees.

Some banks said they could not reduce lending interest rates for outstanding loans immediately as the input capital for the loans was mobilised with high interest rates while the loan interest rate adjustment cycle under banks’ credit contracts was often from three to six months.

However, for new loans, banks are lowering lending interest rates to stimulate credit demand under the current context that input interest rates have fallen sharply and credit growth is very low.

By the end of June this year, credit growth was only 4.03%, against 9.4% of the same period last year, the lowest credit growth in the past ten years.

According to banking expert Dr. Nguyen Tri Hieu, interest rates are in a downward trend, but the risks of the economy are increasing, which means that banks will be more cautious when lending and it is not easy for firms to borrow.

For firms, the demand for loans is only moderate due to difficulties in the market and slow sales of goods. Firms will boldly borrow capital only when the economy recovers.

A representative of Maybank Securities Company also said although the State Bank of Vietnam (SBV)’s policy interest rate was reduced four times, the lending interest rate is still anchored at a high level. This is mainly because banks are stuck with high-cost capital raised last year and in the first months of this year. However, high-interest deposits are gradually coming to maturity so lending rates will continue to decrease in the near future.

In order for the lending interest rate to return to normal, it must be reduced by about 1.5 percentage points compared to the current rate. In addition, the SBV’s policy interest rate can be reduced by at least 50 basis points within the next three months, a Maybank representative said.

International banks in Vietnam such as HSBC, UOB, and Standard Chartered all also expect the SBV to continue to cut the refinancing interest rate by another 50 basis points to 4.0% in the third quarter (the equivalent rate during the pandemic years) and keep the rate unchanged until the end of 2024 and 2025.

Under Resolution No. 97/NQ-CP of the Government’s regular meeting in June 2023, the SBV, in conjunction with other relevant ministries and agencies, will to continue lowering interest rates, especially lending rates, by at least 1.5 to 2 percentage points per year for both new and outstanding loans./.