Further reduction of lending rates by 0.5%: Is it feasible?

Interest rate of reduction of 0.5% is impossible for credit institutions. Photo: ST

Many factors of assistant

According to the State Bank (SBV), On the market today, the interest rates are relatively stable. Presently, VND lending interest rates are common for priority sectors at 6-6.5% per year for the short term, the SOCBs apply the interest rates of the medium and long-term with popularity for priority areas at 9-10% per year. The Interest rates for normal business are at 6.8-9% per year for short-term and 9.3-11% per year for the medium and long-term. For good customer groups, the financial situation is healthy and transparent, the short-term interest rate is 4-5% per year.

Thanks to the stable interest rates, according to the report of the macroeconomic situation in August and 8 months in 2017 of the National Financial Supervisory Commission, the August credit continued to grow positively. It is estimated that by the end of August in 2017, the credit will increase by 11.5% compared to the end of 2016 (10.2% in the same period of 2016). In the term of mobilization of capital, the Commission said that the capital mobilization in 8 months of 2017 grew quite well, estimated to increase by 9.1% compared to the end of 2016 (11.4% in the same period of 2016). Thanks to that, the liquidity of the system is quite plentiful.

Therefore, many experts said that the lending interest rates are many supporting factors to reduce under the policy required by the Government. Specifically, the pressure from the exchange rate is not too large, the US dollar exchange rate in the world market is falling sharply, the Bloomberg Dollar Index decreased by 9.3% compared to the beginning of the year, which made the exchange rate of VND for USD to reduce much pressure. Inflation is likely to be under control, reaching the target of less than 4% set by Congress. The pressure from the issuance of government bonds is not redundant (about 20% of the plan). In particular, experts highly appreciate the efforts of management in resolving issues surrounding the handling of bad debt because the bad debts are resolved, they will help the banking sector have more necessary funds to support the decreases of the interest rate.

In particular, according to Assoc. Prof. Dr. Pham Hong Chuong, Vice Rector of National Economics University, said that the current interest rates in Vietnam have decreased compared to the previous time but generally it is still high compared to other countries in the area. Meanwhile, the credit growth is one of the solutions to boost the economic growth, but its effectiveness depends on a number of factors such as: how is the interest rates? And what aspects is the credit invested in? If the credit grows and the interest rates decline, the credit is a priority for the long-term investment of production and business, this will be the effective solution. If the capital increase but the interest rate does not decrease, the cost of capital does not decrease, it will be difficult to have a positive impact on the production of enterprises, in the long run, the effect of the increase in money supply will be reduced.

Need for sync

In addition to the requirement of reducing lending interest rates, the Government also suggested that the banking sector strive the credit growth at 21% in the whole year to promote production and business. Thus, with the 4 months left of 2017, the amount of money issued into the economy is huge, creating motivation for banks to reduce lending interest rates and help them access capital more easily.

Moreover, it is because of the high credit growth, the profitability of the credit institution system is good. As reported by the National Financial Supervisory Commission, profit after tax until the end of July 2017 reached 41 trillion, up 59.7% over the same period in 2016. The Commission said that profits are mainly due to the contribution from credit and service activities; Interest from credit activities increased sharply due to high credit growth.

It can be seen that high credit growth has helped the banking sector to get the benefit. Moreover, many banks will be happy to have access to credit facilities, especially the time of business is coming closer. Therefore, if the lending rate decreases by 0.5%, the degree of the growth rate of credit institutions may be more positive.

The worrying issue, however, is that a number of experts point out that lowering interest rates, boosting credit growth, it will affect inflation; Increasing credit may have an impact on bank liquidity and bad debt growth. According to the National Financial Supervisory Commission, by the end of June 2017, the bad debt was reported about 157 trillion dongs, up 21.5 percent from the end of 2016, the bad debt ratio was about 2.9 percent, in by 2016 at 2.6%.

Although it is still worried, it is not the first time in 2017 that the reduction of interest rates should be discussed. In July, responding to the Prime Minister's call for business support, the State Bank of Vietnam (SBV) has issued a decision to reduce the maximum rate of short-term lending in VND by credit institutions for borrowers lending more 0.5 % per year. Immediately, many commercial banks have reduced interest rates by 0.5% per year for the short-term interest rates for businesses in priority areas. It is worth mentioning that interest rates on loans decreased but do not affect deposit rates by reducing operating costs, focusing on the lending interest in the business sector; This helps the financial market currency without fluctuations.

In general, the more the interest rates reduced and the more convenient the enterprises, help the businesses boldly expand production investment. However, for banks, the increase in the interest rates also involves many factors, which may directly affect bank profits and credit security. Therefore Reducing interest rates is always a move that needs to be carried out sync, basing on the favorable conditions of the economy.