Interest rate support: How to do it fast and right?

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The SBV still prioritizes the goal of maintaining low lending rates to support enterprises and the recovery of the economy. Photo: collected

Starting deployment

Immediately after the Government and the State Bank of Vietnam (SBV) issued regulations related to the 2% interest rate support program, commercial banks said they were preparing to quickly step-in.

Bank for Agriculture and Rural Development (Agribank) was the first bank to announce the implementation of the policy of supporting the interest rate of 2% per year on the actual loan interest rate applied to loan agreements and disbursements from January 1, 2022 to December 31, 2023 and for the interest payment obligation at the interest payment terms that the time of debt repayment arises from May 20, 2022 to December 31, 2023. In terms of conditions for interest rate support, customers must first apply and meet the loan conditions in accordance with current laws and Agribank's internal regulations on lending operations to customers.

Mr. Nguyen Viet Cuong, Deputy General Director of Vietcombank said that the bank would soon prepare communication work, issue professional processes, ensure publicity and suitable objects and not letting policy profiteering happen. Thereby the bank made efforts to well implement the policies of the Government and the State Bank. According to a representative of VietinBank, the bank has made a preliminary list and drafted guiding documents to implement the interest rate support programs smoothly in the system. ACB representative said that it had registered a limit of participation in interest rate support of VND 2,000 billion, equivalent to a credit size of VND 100,000 billion, within 2 years..

According to commercial banks, the implementation of interest rate support will contribute to speeding up the process of socio-economic recovery and development, continue to remove difficulties, and support customers affected by the Covid-19 pandemic.

Although the interest rate support policy was implemented in 2009 with a support package of US$ 1 billion, this is the first interest rate support policy using the large-scale State budget deployed through the commercial banking system. Therefore, the representative of the SBV leadership assessed that the implementation process might be complicated and not make profit for banks, but this is a political task, and it is necessary for commercial banks to actively participate in order to contribute support for growth recovery in general.

Credit limit is tight, concerns about access

At the Prime Minister's Conference with Vietnamese farmers (May 29), Mr. Le Quang Thang, Director of Rau VietGAP Cooperative from Quang Ninh said that after being affected by the Covid-19 pandemic, farmers face many difficulties in terms of capital to restore production. But accessing low-interest capital is still difficult, so he suggested a loan without security assets, in accordance with current regulations.

Similarly, an enterprises representative of a tourism industry also expressed that the capital cost was reduced by 2% per year, helping the enterprise to have significant additional financial resources for business activities. However, the conditions to enjoy the interest rate compensation was a problem that many enterprises were worry about. Because, like as tourism industry, after two years of fighting with Covid-19, many enterprises have almost no revenue, the company's operating structure has changed a lot, even having to live throughout other business lines. While the interest rate support policy needs to be based on loan records and business plans of enterprises, banks do not lower lending standards, so it is difficult for enterprises to meet standards such as no outstanding loans being restructured, no bad debt and no secured assets

Currently, according to the regulations of the Government and the State Bank, not all enterprises doing business in all fields will be supported with low interest rates, but only 11 groups of industries and fields that the Government stipulates in Decree 31. In addition, enterprises must also meet the loan conditions according to current regulations of each commercial bank.

In fact, the caution of banks is completely correct, because the risk of bad debt increasing at banks has become more and more obvious. According to the State Bank, if outstanding loans of customers whose repayment term is restructured, interest and fee exemption and reduction is exempted, and the debt group remains unchanged according to Circular 01/2021/TT-NHNN are likely to transfer bad debt, On-balance sheet bad debt ratio, unresolved debt at VAMC and potential bad debt was at high 5.76%. Besides, the "expensive" lesson from the interest rate support policy since 2009 is still available, so banks cannot "nod" to lend excessively or lower credit standards as desired by many enterprises.

Moreover, according to commercial banks, with the implementation of this interest rate support policy, credit demand will be very large in the coming time, the amount of credit in the interest rate support group is expected to account for 30- 40% of total outstanding loans, but the credit growth limit (room) of banks is relatively narrow. Therefore, banks recommend the State Bank to consider loosening the credit room for banks, or possibly excluding these preferential loans from the credit room calculations.

Therefore, the State Bank has requested banks to actively balance capital sources to invest in effective production and business projects and plans, especially in industries and fields receiving interest rate support. But according to the State Bank, the implementation and management of credit growth will have to be based on reasonable calculations to ensure macroeconomic indicators. Because if credit growth is hot, it will make it difficult to control inflation, but if it is too tight, it will affect economic growth as well as the recovery of enterprises.

From the above issues, finance and banking expert Dr. Nguyen Tri Hieu said that the lending problem was not only about low interest rates, but also how to have loan programs be suitable to the capabilities of domestic enterprises. According to this expert's calculation, 98% of enterprises in Vietnam are small and medium enterprises, so only about 25% can get loans from banks. Therefore, enterprises need more solutions on loan guarantee for the effective implementation of interest rate support policies.