Lower interest rates – a "golden opportunity" for businesses.

(Baonghean) - Entering March 2015, banks have lowered interest rates. This move is seen as a response to the call from the head of Vietnam's banking sector to further reduce medium and long-term lending interest rates by 1-1.5% per year this year; it also raises expectations that interest rates may be adjusted even lower in the near future...

Transactions conducted at the Saigon Commercial Bank branch.

Against the backdrop of a weakening economy, limited capital absorption capacity of businesses, and continuously lowered interest rates to their lowest levels in recent years, the government has demonstrated its determination to manage monetary policy stably and flexibly in each period, contributing to curbing inflation and creating conditions for businesses to access cheap capital for investment in production and business, ensuring good competitiveness in the market.

Based on observations at banks in Nghe An province, over the past week, banks have flexibly reduced deposit interest rates by approximately 0.4-0.5% per year. Although the State Bank of Vietnam has not yet issued a directive specifying the exact rate reduction, commercial banks have flexibly adjusted interest rates based on the actual capital needs of the market and ensuring a balance between input and output.

At the Nghe An branch of the Bank for Investment and Development of Vietnam (BIDV), deposit interest rates for terms of 1 to 11 months currently range from 4% to 5.4% per year. For terms of 12 months or more, the maximum rate applied is equal to the ceiling set by BIDV Central (6% - 6.3% per year). Short-term deposit interest rates are also capped at the State Bank of Vietnam. Thus, deposit interest rates for some terms have decreased by 0.1% - 0.5% per year compared to the beginning of the year. As for lending interest rates, from December 2014, the branch adjusted them down by 0.5% per year across all terms for customers; in January 2015, a further reduction of 0.5% per year was made for customers classified as A or higher.

In addition, BIDV Nghe An also offers preferential interest rate credit packages for businesses borrowing for terms under 6 months, with interest rates ranging from 5.5% to 8% per year. For micro-enterprises, the lending interest rate is below 9.5% per year. The premium retail package and the Lunar New Year retail package have reduced interest rates by 0.5% per year. By the end of February 2015, there was a slight reduction of 0.2% to 0.5% per year for terms under 3 months, aiming to stimulate and support customers and businesses borrowing capital for trading goods during the 2015 Lunar New Year.

Ms. Le Thi Mong Ly, Deputy Director of BIDV Nghe An, stated: "The gradual reduction in interest rates has positively supported businesses and customers in accessing affordable capital, effectively serving production and business activities. To date, the branch's outstanding loan balance has increased by over 100 billion VND compared to the beginning of the year, a 2.6% increase, primarily driven by credit to traditional businesses, with a slight increase in retail customers. Capital mobilization increased by 130 billion VND, also a 2.6% increase, mainly due to increased deposits from individual customers. BIDV Nghe An strictly adheres to regulations on deposit interest rate ceilings, consistently reduces lending interest rates, and offers special preferential packages tailored to different customer segments."

At Agribank's Nghe An branch, deposit interest rates for various terms are listed as follows: 1 month: 4%/year; 3 months: 4.8%/year; 6 months: 5.3%/year; 12 months: 6%/year; 24-36 months: 6.3%/year. Lending interest rates for production and business needs are as follows: a maximum short-term lending rate of 7%/year for the target group specified in Circular 08/2014/TT-NHNN; a maximum short-term lending rate of 10.5%/year for other production and business sectors; and medium- and long-term lending rates ranging from 8.5% to 10%/year for the target group specified in Circular 08/2014/TT-NHNN.

Mr. Phan Hoang Lan, Deputy Head of the General Planning Department of Agribank Nghe An, shared: Recently, the branch adjusted interest rates downwards for 3-month terms, with a reduction of 0.2% per year, while other terms had already been adjusted downwards before the Lunar New Year. Although deposit interest rates decreased, mobilized capital still increased significantly; as of March 11, 2015, the branch's total capital reached VND 15,746 billion, an increase of VND 63 billion compared to the beginning of the year. Meanwhile, outstanding loans amounted to VND 12,556 billion, a decrease of VND 100 billion compared to the beginning of the year. This is also in line with the annual pattern, where in the first quarter, credit demand usually decreases and capital mobilization increases, because at this time businesses and individual customers have not yet intensified production and business activities. The increased deposit attraction will create favorable conditions for the bank to better serve capital needs in the months to come.

Manufacturing of plastic door frames at Austdoor Nghe An Joint Stock Company.

Following the trend of declining interest rates, the Saigon Commercial Joint Stock Bank branch applies deposit interest rates of 5.5%/year for terms under 6 months; 6.8%/year for 6 months; 7.2%/year for 12 months; and 7.5%/year for 18 months. For loans, the rates are 9%/year for 3 months; 9.5%/year for 12 months; and 10.55%/year for medium and long-term loans. Overall, the interest rate reduction for some terms at this bank is 0.2%/year.

Mr. Nguyen Duc Tri, Deputy Director of Saigon Commercial Bank, shared: "Despite the difficult economic conditions, all staff and employees of the branch are striving to serve customers in the best possible way."Currently, although the State Bank of Vietnam has not yet issued an official document adjusting the specific interest rate reduction, the Saigon Commercial Bank branch has proactively lowered interest rates for customers. This will consequently reduce lending rates, creating favorable conditions for customers and businesses to access affordable loan capital...

However, this also presents challenges for banks in raising capital, because when interest rates fall, customers are hesitant to deposit savings and seek other investment channels with higher returns. To ensure sufficient capital to meet production and business needs in the final months of the year, the branch is actively seeking out customers, providing excellent customer care and services, and offering promotions to attract a stable increase in deposits.

From the business perspective, Mr. Nguyen Dinh Sinh, Director of Austdoor Nghe An Joint Stock Company, stated: "Never before have monetary policies and bank interest rates created such favorable conditions for businesses as they do now. This is a 'golden opportunity' to stimulate demand for manufacturing and business, enabling companies to produce more products to better serve society. With low interest rates, banks are eager to serve businesses, and procedures for quick and easy disbursement of capital are streamlined. Currently, our company is in the process of applying for a loan to invest in production at the beginning of the year, with an interest rate of 7% per year."

Regarding the decrease in deposit interest rates, it will certainly lead to a reduction in lending interest rates for new loans in the near future. Currently, the difference between deposit and lending interest rates at some banks ranges from 3.2% to 3.5% per year. Therefore, it will be at least three weeks or more than a month before borrowers can benefit from further reduced interest rates compared to the current rates, once new loans are signed.

Quynh Lan