Worries about increase of interest rates

	Interest rates show signs of increasing
	Interest rates under pressure
	Duality of interest rate ceiling removal

Are the interest rates stable?

From the beginning of the year, the deposit interest rates have slightly increased in many commercial banks, but mainly in small and medium size and small commercial joint stock banks. Moreover, in recent times, many commercial joint stock banks are racing to issue deposit certificates with very high interest rates of 8-8.8% per year.

Before this situation, according to experts of Bao Viet Securities Joint Stock Company (BVSC), if the medium banks still want to develop credit, they must choose one of two ways: the first way is raising interest rates for long - term deposits to attract more medium and long term capitals; and the second way is adjusting interest rates for short- term deposits to increase the absolute value of total short-term capital. Both ways caused pressure to raise deposit rates, in short term or long term.

Talking about the reason for race on deposit interest rates, Dr. Nguyen Duc Do, Deputy Director of the Institute of Financial Economics (Ministry of Finance) said that the interest rates have increased due to good credit growth from the beginning of the year and pressure from further increases in interest rates of the US Federal Reserve Department (FED) in mid-March. But the most important reason was that commercial banks have to adjust interest rates and restructure the capital in accordance with Circular 06/2016/TT-NHNN amending some articles of Circular 36/2014/TT-NHNN on safety limits for operations of credit institutions, which requires banks to reduce the ratio of using short-term capital for medium and long term loans from 60% to 50% from the beginning of 2017.

"The high increase of deposit rates will certainly lead to lending rates, the question is how much increase, which depends on the operation of the State Bank of Vietnam (SBV) and the scale of this increase in interest rates at commercial banks, "said by Dr. Do.

In fact, the lending interest rates are showing signs of rising, an economist stated, many personal loan agreements have applied interest rates up to 12.5-13% per year, increasing by from 0.5 to 1% compared to the previous times. This makes enterprises worried about the "break" of the target of reducing lending interest rates in 2017 of commercial banks and the SBV.

However, to stabilize the situation, on March 27, 2017, the State Bank of Vietnam issued a statement saying that the market also appeared where many banks reduced the VND deposit rate from 0.1% to 0.3 % per year. According to the SBV, the increase and decrease in interest rates of commercial banks in the recent times to meet their business strategy and market conditions are normal. In fact, the liquidity of the banking system is still abundant and the market has no pressure to raise interest rates. Therefore, in general, the deposit interest rate and lending interest rate of commercial joint stock banks remains stable.

Concerns

In the operation of enterprises, the cheaper the loan capital is, the more opportunities for enterprises to expand investment and business. However, despite efforts to reduce lending interest rates according to many enterprises the cost for capital borrowing still occupies a large part in the financial reports of enterprises, reducing the competitiveness of enterprises, especially enterprises with small capital and mainly depending on bank loans.

According to Nguyen Truong Giang, a member of the Small and medium sized enterprise support group, JETRO HCMC, high lending rates weaken the competitive basis of domestic enterprises, making the investment costs and raw material and employee costs increased. In particular, lending rates in Vietnam are still higher than those in many other countries in the region. For example, the lending interest rates of Thailand are only average 7.1%, while the lending interest rates in Vietnam are more than 9%.

Moreover, a representative of Dong Hung Co., Ltd. (a company specializing in construction and construction material supply) is concerned that the increase in lending interest rates will affect new loans and the old loans when renewed, because this is the time that enterprises enhance borrowings, increasing the cost for enterprise’s loans. Particularly, experts said that if the lending interest rates continue to increase sharply, real estate enterprises and buyers of new houses will be the ones who must "sit on the fire", and the liquidity of real estate projects will be affected, causing difficulties for markets of which operations mainly depend on bank loans.

However, Nguyen Huu Thap, Chairman of the Tuyen Quang Business Association shared, enterprises are not only worried about the high or low interest rates, but also more worried about the ability to access capital sources due to enterprises and Banks often meeting difficulties in guarantee asset valuation, even many newly established enterprises with small scale find it difficult to obtain approval for loans from banks. Therefore, Mr. Thap suggested that banks should release mechanisms to improve loan accessibility, this is what businesses need rather than increase or decrease in lending rates.

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In general, loans up to now for enterprises have concerns, and fluctuations relating to capital have caused worries for enterprises. Therefore, the initiative with capital and the positive support from banks will make enterprises feel more comfortable in business and production and reduce pressure when the financial and currency market changes.