The State Bank of Vietnam (SBV) on Thursday halved the interest rate on banks’ compulsory reserves to 0.5 percent per annum.

It also lowered the interest rate on deposits by the Vietnam State Treasury, the Deposit Insurance of Vietnam and several other financial institutions by 0.2 percentage points to 0.8 percent.

Credit growth in the first seven months fell to a seven-year low of 3.45 percent, according to the SBV. Banks have been reluctant to lend due to fear of rising bad debts as many businesses saw revenues plummet due to the impact of the coronavirus.

Lower interest rates for deposits could boost lending.

In May the SBV cut its refinancing and discount rates and dong deposit rate cap as part of the government’s efforts to "help businesses overcome difficulties and ensure social security amid the Covid-19 pandemic," following an earlier cut in March.

But experts have said the lower policy rates have not had a major impact on the economy since businesses have trouble accessing bank credit not due to high interest rates but because they could not prove their repayment capability amid the uncertainties caused by the pandemic.