Home » Banking & Finance, Business » Slashing interest rates to support businesses

Over the pSlashing interest rates to support businessesast week, a number of large State-owned commercial banks have announced deep cuts in their deposit interest rates. The move was expected to trigger a deposit interest cutting race across the entire banking system as a prerequisite to reducing lending rates.

Vietcombank announced on May 6 that it will cut its annual deposit rates for one-, two-, and three-month loans to 6%, 6.5% and 6.8%, respectively. The ceiling rate for six to nine month term loans was reduced to 7%.

The BIDV followed suit, slashing its deposit interest rate to 6-7% on loans between one and eleven months. Vietinbank made a similar move and lowered its ceiling on Vietnamese dong deposits with terms of less than 12 months to 7%.

Besides cutting interest rates, commercial banks are also providing a range of preferential loan packages, says ABBANK, which is now offering up to VND500 billion (US$24 million) in consumer and business loans. Vietinbank has also set aside up to VND80 trillion (US$3.84 billion) to lend to business at 7% per year for operations in many different areas.

Some experts say that commercial banks cutting deposit interest rates and offering preferential loans to boost credit growth is in line with market trends. According to the State Bank of Vietnam, deposits grew 5.34% as of April 23, while credit rose only 1.4% compared to the end of 2012. Despite some improvement, credit growth in the first four months of 2013 fell short of the central bank’s target. In the context of abundant funds and slow credit growth, lowering deposit rates to cut costs and boost lending is an optimal choice for commercial banks.owever, there are some concerns that the move to cut deposit rates poses potential risks in the short term. Some bankers argue that it is easy for the large banks with good liquidity to slash interest rates but smaller banks face a tougher choice. Some are worried that depositors will withdraw their money and switch to more profitable investment channels if they cut their deposit rates too much.

Meanwhile, banks still face great challenges in lending their funds to businesses. Low interest loans are available but disbursement is slow, either because businesses have no demand for capital or very few can meet bank requirements for cheap credit. In fact, those in dire need of bank loans still have to borrow at 11-13% for short-term loans and up to 15% for medium and long-term loans. Therefore, local enterprises expect that lending rates will fall to below 10%, in proportion to the reduction of deposit rates.

Experts recommend that action be taken to boost purchasing power, an important factor that is hampering credit growth and a problem with which banks with surplus cash have been grappling. Enterprises are also advised to enhance their administration capacity and modernise technology to restore confidence and enable banks to grant more loans to their business customers.

(Nhan Dan Online)

No comments yet... Be the first to leave a reply!