The credit demand of businesses is increasing as the economy is active again, so it is likely to impact lending rates at banks.

Lending rate was not proportional. Source: Internet

Credit offers but in the short term

According to the State Bank of Vietnam (SBV), by April 16, the credit of the whole economy topped VND 9.4 trillion, an increase of 3.34% compared to the end of 2020. Meanwhile, it increased only 0.78% from the same period in 2020.

According to the State Bank of Vietnam, credit structure continued to shift in a positive direction, focusing capital for production and business sectors, especially in priority areas, supporting the process of restructuring the agricultural sector and developing fisheries, supporting industries, supporting small and medium enterprises, export enterprises, and high-tech enterprises.

Banks have launched many preferential loan programmes to serve the production needs of firms.

For example, Vietcombank has spent VND 30,000 billion on the "Tai Loc Business Loan" package for individuals and business households to borrow additional working capital for production and business with an interest rate of 5.7%/year for loans under six months, 6.3%/year for loans from 6-9 months and 6.9%/year for loans from 10-12 months.

Also at MSB, from now to the end of this year, import-export enterprises which are MSB's customers would be able to borrow loans at interest rates of only 6%/year for VND and 3% per year for USD.

From the beginning of April to the end of June 2021, BIDV implemented a new short-term loan package "Connecting - Reaching Out" with a scale of VND 60,000 billion and preferential interest rate is only 5% each year for loans term of less than six months or only from 5.5%/year for loans from six months to 12 months.

Similarly, Agribank spends VND 30,000 billion to deploy a preferential credit programme for small and medium enterprises, with an interest rate of 4.8%/year for short-term loans and 7 .5%/year for medium and long-term loans.

However, in the opinion of many businesses, although the interest rate was called preferential, it was not proportional. Moreover, these preferential packages usually take place for a period of time and then return to the normal interest rate. After the preferential loan period with an interest rate of 6%/year, the business loan will return to a normal level, up to 8-10%/year for a 12-month term.

The common issue raised by many businesses is that not all firms can enjoy the preferential interest rate packages offered by banks and this is even more difficult for small and medium enterprises, which have experienced a decline in profits during the Covid-19 pandemic.

Continue to reduce interest rates 

In a recent survey of banks conducted by the State Bank of Vietnam, banks forecast that interest rates and service fees would continue to fall in the second quarter of 2021 and the whole of 2021. Notably, the percentage of banks forecasting a decline of interest rates was higher than the rate of increasing interest rates.

On average, the interest rate level at the end of 2021 basically revolves around the common interest rate at the end of 2020. The reason for the decrease in interest rates is abundant liquidity in the system, despite the quarterly liquidity of January 2021 narrowing significantly compared to the end of the fourth quarter of 2020. It is forecasted that in the second quarter of 2021, liquidity is expected to improve compared to the prior quarter.

Besides that, many banks also said they would continue to reduce lending rates to support people and firms.

According to Sacombank's leaders, in 2020, the bank has debt rescheduling, giving exemptions or reductions of loan interests and charges by more than VND 8,300 billion in accordance with Circular 01 of the State Bank and deployed VND 44,500 billion of preferential credit packages for individuals and firms. So this year, the bank will continue to reduce interest rates to support businesses under the direction of the State Bank.

TPBank leaders also said the impact of debt rescheduling without arrears, could be up to VND 400-500 billion in 2020, but from the fourth quarter of 2020, most customers have paid their debts, so profits in 2020 and 2021 of the bank are unaffected. Therefore, banks will continue to cut lending rates to support businesses.

The SBV said it would keep the operating interest rates, creating favourable conditions for credit institutions to access capital from the SBV at low cost, reducing lending rates.

The SBV plans to continue to regulate interest rates in line with macroeconomic balance management, inflation, market developments and monetary policy objectives to facilitate the reduction of capital costs for people, firms and the economy.