Early in the year, Banks reduce interest rates: Business get benefits?

Some commercial banks reduce interest rates is a good sign. Picture: Tran Viet.

Launch the trend

Following the direction of the Government on striving to reduce lending interest in line with macroeconomic conditions in Resolution No. 01 issued on January 1 of 2018, the Bank for Investment and Development of Vietnam (BIDV) has announced a reduction of 0.5% /year with short-term interest rates in VND to a maximum of 6% per year. But the new lending rate will be applied to customers in the priority areas of the Government, focusing on customers having transparent and healthy financial status in the field of export and import, supporting industry as well as enterprises applying high technology and high technology agriculture ...

Along with this trend, Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) also announced a reduction of 0.5% / year interest rates for short-term and medium-term loans in VND for priority areas to encourage development. Similarly, the Bank for Foreign Trade of Vietnam (Vietcombank) also promulgated a new lending interest rate policy of up to 6% per annum, applied to both outstanding loans for five priority beneficiaries according to regulations. Vietnam Prosperity Joint Stock Commercial Bank (VPBank) has also announced that it will reduce interest rates from 0.5-1% per year for small and medium size enterprises to perform well in the priority sectors of the Government.

With these solutions, VietinBank representatives thought that it will continue to strongly promote production, business and consumption for enterprises and people, thus contributing positively to the socio-economic development of our country.

It can be seen that some commercial banks lower interest rates is a good sign. Especially, the interest rate reduction is considered by many experts to be more suitable in 2018 so that bad debt can be solved faster. The credit mainly focused on production business and stable inflation. On the open market (OMO), the State Bank of Vietnam (SBV) has reduced interest rates to 4.75% per year after maintaining 5% per year for many years; This is expected to support banks to reduce interest rates. Therefore, it is expected that there will be more large, medium and small banks that will reduce interest rates in the future.

Reduce interest rates or cut procedures down?

In mid-2017, banks also launched a program to reduce lending rates, which made the enterprises more excited because they could access cheap capital. However, the reduction in early 2018, was only for support companies in the priority field, while other businesses still have to wait for large interest rate cuts.

On this issue, Mr. Mac Quoc Anh, Vice Chairman cum Secretary General Association of small and medium enterprises in Hanoi said that the current low interest rates mainly focused on AEOs which are not a big part of the business community, so the benefits are not for the majority.

On the side of enterprises, representatives of Hung Phat Co., Ltd, said his enterprise belongs to the field of mechanics so it should not be eligible for loans in these interest rate reductions by banks. Moreover, his business is small, which has been operating for a few years so it is still very difficult to access bank capital. Enterprises are not allowed to borrow mortgages but have to mortgage with secured assets. Therefore, there may not be a need for reduced interest rates for businesses, but it’s necessary to improve the ability to access capital for them, motivating businesses to borrow for expanding production.

With such difficulties, many businesses have to consider other loan options such as mortgage loans in financial companies or private units with high interest rates, sometimes up to 15% per year. An expert has evaluated the remarkable thing about unsecured loans, that banks are too cautious, afraid of criminalization, so they still limit this form of lending; The fact is that banks like to lend a big value to businesses rather than lend small amounts to many businesses.

In its direction, the State Bank has always set the target for commercial banks to reduce administrative procedures and reduce lending conditions to improve access to credit for businesses. For many businesses, this is sometimes more necessary than lowering interest rates, because lending rates are really low for high credit rating companies or operating in priority areas… Capital for enterprises should be implemented in a synchronous way and with more effort, so that businesses can feel really excited before the interest rate reduction, to support businesses in the banking system.

Therefore, capital raising for enterprises should be done in a synchronized and with more effort, so that enterprises really get benefits from the movement to reduce interest rates, supporting enterprises in the banking system.