About a week after the call of the State Bank of Vietnam (SBV), more than ten commercial banks have announced to lower lending interest rates from now until the end of the year. Commercial banks have introduced specific and public policies from the time of implementation to beneficiaries. The reduction of lending interest rates from 1 percent to more than 2 percent per annum, depending on the difficulty level of customers. Some commercial banks specified the total amount, the outstanding balance, and the number of customers that will enjoy interest-rate cuts this time. They even announced the total decrease in profits if they fully implement the interest rate cut.
Vietcombank's leader said that this was Vietcombank's largest interest rate cut in 2021, with a reduction of about VND1.8 trillion. However, Vietcombank will continue to launch many low-interest lending programs for new loans to help customers overcome difficulties from now until the end of the year. Agribank will spare about VND5.5 trillion to support existing customers from now until the end of the year. With this interest rate reduction, Agribank's income will decrease by nearly VND10 trillion in 2021.
Not only State-owned banks, private commercial banks, like VPBank, also said that it would support VND14 trillion of outstanding loans of both individual customers, small and medium-sized enterprises. VPBank’s profit is expected to decline by VND1.5 trillion in 2021. TPBank will reduce lending interest rates by 0.5-1.2 percent per annum from now until the end of the year for nearly VND45 trillion. HDbank will lower lending interest rates for more than 18,000 customers affected by the Covid-19 pandemic, with an interest rate cut of 1-2 percent per annum. This lender focuses on supporting customer groups producing essential products, such as healthcare and food, enterprises with a large number of workers, enterprises, and individuals directly affected by the Covid-19 pandemic.
Commercial banks agree to reduce lending interest rates from now until the end of the year, but the time to consider cutting and applying interest rates is different. Specifically, according to VPBank, small and medium-sized enterprises in the fields of tourism, hotels, education, restaurants, and passenger transport with existing loans will enjoy interest rate cuts from July 20 to the end of December 31, 2021. ACB considers adjusting interest rates for customers from July 15 to October 15. However, the interest rate reduction will depend on the extent of the impact of the pandemic on the business results of enterprises and the income of individual customers.
A leader of a private commercial bank in Ho Chi Minh City acknowledged that although there was still room to reduce lending interest rates, especially when the business results of commercial banks in the first six months of the year remained good, it was not easy to cut the lending interest rates sharply. The bank itself is also an enterprise, and the reduction of interest rates will affect its profit, so it must be agreed upon by shareholders.
Commercial banks also have to set aside financial resources to prevent the risk of increasing bad debt in the coming time. Reducing interest rates to share difficulties with enterprises at this time is necessary, but the banks themselves must give top priority to the safety of the banking system. Therefore, a wave of deep and wide reduction in lending interest rates is unlikely to happen, he said.
Synchronous policy – the decisive factor
Currently, the lending interest rate has been at the lowest level ever. This situation not only occurred at four State-owned commercial banks but also at private commercial banks, with lending interest rates dropping by 3-4 percent compared to last year.
According to the Vietnam Small and Medium-sized Enterprises Association, lending interest rates have never been as low as they are now. However, this association also said that this interest rate level is still high compared to the endurance of enterprises in the context of interrupted liquidity and no revenue. For tourism and hotel enterprises, the decrease of 1-2 percent is not high enough due to the loss of cash flow to repay debt.
The leader of a branch of a State-owned commercial bank in HCMC said that during this time, the support provided according to the situation and the actual health of each enterprise would be more substantive than reducing interest rates equally. According to this leader, banks lending at higher interest rates than the market level should lower interest rates more sharply. Many businesses with large outstanding loans at the bank shared that reducing the interest rate by 1-2 percent per annum is not as necessary as increasing the credit limit to have more capital to cover expenses and business activities.
"We are currently revaluing collaterals, as well as the cash flow management of some enterprises, to consider increasing the credit limit according to the needs of businesses, instead of reducing interest rates for customers," he said.
The ability of enterprises to endure the fourth wave of Covid-19 is worse and worse because they have suffered the pandemic for too long. The bank's move to reduce lending interest rates is more meaningful because it helps to ease the cost burden and difficulties for enterprises. However, many people said that for enterprises to survive through the Covid-19 pandemic, authorities must have synchronous solutions, such as promoting vaccination for workers as soon as possible, exempting land rents, fees, and taxes for enterprises. Because only when enterprises operate stably again, will the economy actually recover.
According to Dr. Nguyen Tri Hieu, a finance-banking expert, credit support for enterprises is now an urgent issue because, without credit, enterprises are on the verge of bankruptcy. As for the interest rate, it must move according to the market. The lending interest rate depends on the deposit interest rate. If the deposit interest rate declines steeply, it will cause the cash flow to run out of the banking system. Therefore, authorities and the SBV need to have mechanisms and policies to create incentives for commercial banks to boldly lower lending interest rates through reducing the refinancing interest rates and the cash reserve ratio.
“The SBV needs to mobilize commercial banks to provide a credit package of VND300 trillion with low-interest rates of about 3-5 percent per annum to support small and medium-sized enterprises. Accordingly, each commercial bank only needs to deduct 3 percent of the total credit balance to participate in this support package," Mr. Hieu suggested.