Lowering deposit and lending interest rates: Stimulating investment in production and business

(Baonghean) - The State Bank of Vietnam (SBV) has just announced its decision to lower the ceiling on deposit interest rates from October 29. This is the second time this year that the SBV has adjusted deposit interest rates down to reduce lending interest rates, remove difficulties for businesses and balance supply and demand in the capital market.

"Arrow" hits many targets

According to the above announcement, the State Bank reduces the maximum interest rate on deposits in VND of organizations and individuals at credit institutions and foreign bank branches from 6%/year to 5.5%/year for deposits with terms from 1 to less than 6 months; the maximum interest rate on deposits in US dollars of individuals at credit institutions and foreign bank branches will be reduced from 1%/year to 0.75%/year.

Right after the Governor of the State Bank of Vietnam issued a message about lowering the deposit interest rate for terms under 6 months to 5.5%, on October 29, according to our research, many banks have adjusted their deposit interest rates on the electronic listing system. At Agribank, the short-term deposit interest rate has been adjusted in accordance with regulations. Specifically, the deposit interest rate for a 1-month term is 4.3%, for 3 months it is 5%, for 6 months it is 5.5%, and for long-term deposits the interest rate is higher, however, the highest is only 6.3% for a 36-month term. Joint stock commercial banks have also joined in lowering interest rates; for example, at VIB Bank, the 1-month term is 5%. Mr. Nguyen Xuan Thong - Director of VIB Bank Vinh Branch said that normally, the mobilization interest rate is higher than inflation to ensure positive real interest rate, and with this new decision, the State Bank wants to lower the mobilization interest rate to stimulate people and businesses to invest their capital in developing production and business. At the same time, lowering the mobilization interest rate is also to reduce the lending interest rate, creating favorable conditions for businesses to borrow capital for production and business, increasing the bank's outstanding debt.

Although the deposit interest rate has decreased, the number of customers coming to make transactions has not changed much. At the Agribank Head Office, Ms. Ha in Tan Phuc block, Hung Phuc ward (Vinh city) shared: "Today, I have a book due to be renewed. Currently, the interest rate reduction is not much, but because I think it may decrease further and long-term deposits will have higher interest rates, I decided to switch to a 1-year term to enjoy an interest rate of 6.3%/year".

At Nghe An Agricultural Bank, up to this point, the total mobilized capital in domestic and foreign currencies has reached 15,466 billion VND, outstanding loans have reached over 12,000 billion VND; capital mobilization has basically completed the plan, reaching 13%; outstanding loan growth has reached over 75% of the target assigned by Vietnam Agricultural Bank, credit quality is guaranteed under control. Mr. Phan Duc Tien - Director of Nghe An Agricultural Bank said: "To remove difficulties for businesses, properly implement the policy of the Governor of the State Bank as well as the Vietnam Agricultural Bank, on the basis of reduced mobilization interest rates, cost reduction, we have prepared synchronous solutions to open up capital sources for customers, especially small and medium enterprises; ready to lend for consumption, commercial business during the Lunar New Year, as well as winter-spring crop production of farmers. Currently, we apply short-term domestic currency lending interest rates of no more than 8%/year for subjects applying according to Circular 08 serving the field of agricultural and rural development and export production and business projects according to the provisions of the Commercial Law.

Video clip of Mr. Phan Duc Tien speaking:

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Auto repair service - Toyota Vinh Joint Stock Company.

With the news that banks have reduced deposit interest rates and lending interest rates, many businesses hope that with the new interest rate level, they will be able to borrow at lower interest rates, promptly meeting the capital needs for production and business at the end of the year. Mr. Nguyen Dinh Hy - Director of Toyota Vinh Joint Stock Company shared: "Toyota Vinh's short-term loan demand is relatively large, about 50 billion VND, reducing interest rates will have a positive impact on businesses, helping businesses "breathe easier" to invest in production and business, especially at the end of the year. Besides, lowering deposit interest rates will also stimulate consumption. With low deposit interest rates, people will increase consumption, shopping, home repair... instead of depositing money in banks. And from a certain perspective, our car business also has the opportunity to increase sales". As for Austdoor Joint Stock Company, the capital demand is about 50 billion VND, of which 20% is borrowed capital. Before the news that banks are lowering deposit interest rates and moving towards reducing lending interest rates, the company's leaders also said that this is good news, but the important thing is that banks also need to loosen regulations so that businesses can easily access loan capital...

Video clip of Mr. Nguyen Dinh Hy speaking:

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Difficult to impact credit growth?

The adjustment of deposit interest rates is in line with the supply and demand of capital in the market, helping banks to increase capital and businesses to access loans more easily. However, many people are also concerned about the possibility that people can withdraw money to buy dollars, because the US dollar interest rate in the world tends to increase, the dollarization situation may return, especially in big cities. In addition, the expectation of credit growth is also very difficult, because the current slow credit growth is not due to interest rates, but more importantly, due to the difficult economy, the "weak" state of businesses, making it difficult to absorb capital.

In fact, in Nghe An, the number of newly established enterprises in the first 9 months of 2014 increased by 848, but the number of dissolved enterprises reached over 1,000. Most of the registered enterprises are small and micro-sized, of which 52.15% are micro-sized. Thus, the trend of purification is clearly shown, the number of enterprises facing difficulties and having to withdraw from the market is increasing, showing that the challenges of the economy are gradually eliminating weak enterprises from the market, not strong enough to survive, or not able to change in time to adapt to new conditions. Newly established enterprises have been more cautious in investing in business. Small-scale business models, requiring little investment capital, and flexible cash flow are the optimal choice for enterprises at the present time. Many businesses believe that, in order to support businesses in recovering production and developing business, the issue of interest rates is not as important as unblocking the market and increasing the competitiveness of goods. Many businesses, although being able to borrow at low interest rates, still do not borrow because production is stagnant and they do not know what to do with the loan.

Video clip of Mr. Tran Duc An - Deputy Director of Austdoor Nghe An Joint Stock Company speaking:

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It can be said that the State Bank's move to lower deposit and lending interest rates has a reason, because the current liquidity of banks is mostly redundant and previously, many banks have reduced input interest rates, especially the State-owned commercial banks. Regarding the difficulty in expecting credit growth, it is because the ability to access the market is currently limited due to reduced social consumption, poor competitiveness of domestic goods, and large inventories. That is also the reason why credit growth is low, not reaching the set target; and the market is not surprised by the information that the State Bank has reduced deposit interest rates and lowered lending interest rates at the end of the year when capital demand is high, and according to tradition, lending interest rates will also increase.

Thu Huyen - Duc Thien