In response to the central bank governor’s request to cut costs in order to lower lending rates, a number of commercial lenders, including Agribank, Vietcombank, Vietinbank, VPBank and BIDV, have recently trimmed their rates by 0.5 to 1 percentage point.
Specifically, Agribank has cut the rate on short-term loans from 6.5% to 6% and medium and long-term loans from 8% to 7.5%.
Vietinbank has cut its rates on short and medium-term loans for priority sectors by 0.5 percentage point while Vietcombank has lowered its rates to 6% on loans for priority sectors.
BIDV has also chopped its rates on short-term loans by 0.5 percentage point to a maximum of 6%.
Such rate cuts are considered by analysts as a significant effort by credit institutions ahead of the Lunar New Year. But because of the timing, the rate cuts have been chiefly made by large banks while smaller lenders remain relatively quiet.
Many analysts have said that it will be difficult for banks to lower their lending rates in the future because they are still competing for deposits and a market share, making it impossible for them to lower the deposit rates and consequently the lending rates.
As such, whether the recent rate cuts would become a clear trend and spread through the entire banking system in the future remains uncertain.
Banking expert Nguyen Tri Hieu said that commercial banks are trying to bring down interest rates but it cannot be done immediately because many are struggling with low liquidity as funds are withdrawn for shopping and paying bonuses ahead of the Lunar New Year.
In addition, under a recent circular issued by the central bank, the maximum proportion of short-term funds allocated to medium and long-term lending has been reduced from 50% to 45% from 2018 and will fall to 40% from 2019. Such a tightening measure means a likely rise in the medium and long-term rates in the future.
Economist Can Van Luc said that there isn’t much room for rate cuts in the near future since it is very difficult to reduce the deposit rates, adding that bad debt has not been resolved radically, although the pace has been accelerated.
The National Financial Supervisory Commission (NFSC) stated that interest rates have not been lowered as expected because of a lack of connection between the deposit market and the interbank market.
Specifically, interbank rates are relatively low while deposit rates have not been reduced considerably because good liquidity is seen mainly in large banks.
In the meantime, a number of small banks or those in the process of restructuring are still struggling to gain access to low-interest funds on the interbank market and are forced to maintain or raise their deposit rates.
Furthermore, bad debt remains a significant hurdle to rate cuts while the net interest margin of local banks is rather modest compared with their regional peers, which also discourages them from reducing lending rates, the NFSC said.
Therefore, many experts have called for stronger action from both the government and the banking system in order to bring down interest rates. The government needs to maintain inflation at 4% and take bolder measures to tackle non-performing loans in a more effective manner. At the same time, it is also an opportunity to reduce lending rates if bank credit-related public investment is well managed.
