Vietnam Government Pushes Banks to Lower Lending Rates
HANOI – As inflation begins to ease throughout the country, Vietnam’s banks are seeking a way to reduce their high levels of excess capital. As such, a number of banks are reducing their lending rates in a bid to lower businesses’ borrowing costs and increase the flow of money throughout the country’s economic system.
The Vietnamese government is seeking to capitalize on this trend as it pursues strategies to funnel money to businesses in need and boost the economic environment as a whole.
A number of banks now have lending rates ranging from only five percent to upwards of 8.5 percent a year.
Commercial banks, in particular, are being encouraged to lower their lending costs to businesses. The government has been pushing for these banks to lower their rates to under 15 percent a year. While there has been movement towards this new standard, the government is urging more change.
Banks do offer lower initial interest rates, but the problem remains that the rates tend to switch to floating interest rates after a certain period of time – thus resulting in a higher interest rate than the government is pushing for.
While the lower lending rates provided by the banks is a positive sign for the country, the shadow of “bad debt” on a number of banks’ accounts remains a concern. The bad debt is the level of non-performing loans given out by the banks. Moody’s recently stated in a report that they believed the level of bad debts in Vietnamese banks to be around 15 percent. However, Vietnam’s central bank has reported that they believe the level to be more around nine percent. Whatever the real number may be, Vietnam has publicly recognized the need to continue reducing the level of bad debt on the balance sheets of its banks.
Additionally, there has been a further cut in the rediscount, refinancing and overnight rates on dong-denominated loans. It is hoped that this will spur credit growth and lower the costs for banks as they borrow funds from the central bank.
What follows below is a sampling of some of the actions being taken and lending rates offered by banks in Vietnam:
- Vietcombank announced that it is willing to lend at an interest rate of five percent on the condition that exporters direct 50 to 70 percent of their cash flow made from traded goods through the bank and that they will commit to sell foreign currency to the bank.
- Eximbank has stated that, due to its failure to lend out all of its funds last year, it will be offering a lending rate of around six percent per year.
- TP Bank will offer a lending rate of eight percent for VND or, if using USD, 3.8 percent for the first three months followed by a rate calculated on the deposit rate ceiling plus a small margin.
- Finally, SeA Bank has VND4 trillion available for lending and will offer a minimum rate of 8.5 percent per year to small and medium sized companies, as well as individual households.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as liaison offices in Italy and the United States.
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