Vietnam Export Import Commercial Joint Stock Bank (Eximbank) has been the latest to announce that they will lower the lending interest rate to a maximum of 15 percent per year for old loans, based on the financial capacity of customers.
In addition, Eximbank, coded EIB on the Ho Chi Minh Stock Exchange (HoSE), will also promote overdue debt and bad debt settlements to quickly recover non-performing loans and develop lending for four prioritized sectors.
They include agriculture and rural areas, small and medium sized enterprises (SMEs), export and supporting industries, and boosting foreign currency trading activities and gold trading to offset for a decrease in profits due to the interest rate reduction.
Le Hung Dung, chair of EIB’s board of directors, held an online meeting with 41 branches nationwide on July 13 to direct the reduction of interest rate for old loans from Sunday.
Earlier, Saigon Hanoi Commercial Joint Stock Bank (SHB) also announced that it would cut the lending interest rate for old loans to a maximum of 15 percent per year from Sunday.
On July 11 a series of commercial banks, mostly healthy banks in group 1 and 2 as categorized by SBV, announced that they would lower the lending interest rate for old loans to 15 percent per year from July 15 with an aim to fund struggling local enterprises.
All four state-owned commercial banks, Vietnam Commercial Joint Stock Bank of Industry and Trade (VietinBank), the Bank for Foreign Trade of Vietnam (Vietcombank), the Vietnam Bank for Agriculture and Rural Development (Agribank) and the Bank for Investment and Development of Vietnam (BIDV), announced a cut in the interest rate.
The recent move of those banks is intended to realize the directive of the State Bank of Vietnam (SBV) governor to reduce the lending interest rate to help businesses overcome difficulties.
In particular, at the banking conference on July 7, the central bank’s governor required all commercial banks to consider lowering the lending interest rate for old loans to less than 15 percent per year from July 15.
The rate should be established before implementing the mechanism of a lending interest rate cap.
However, many bankers said it is not easy to quickly the reduce lending interest rate for old loans.
The reduction of the rate still raised many concerns.
A deputy general director of BIDV said that the bank will cut the interest rate for old loans to 15 percent per year, but the difficulty in credit contracts is that commercial banks regulate to adjust down interest rates for loans once every 3-6 months.
In addition, commercial banks have to apply the deposit interest rate cap as prescribed by the central bank, while the lending interest rate will depend on the average capital costs of commercial banks to have different lending rates.
Commercial banks cannot immediately cut the old interest rate since the average capital costs of many commercial banks are now high.
Therefore, commercial banks will cut the rate, but the reduction will be implemented gradually.
Many commercial banks revealed that they cannot immediately decide to cut the interest rate the directed amount, for they have to review all old credit contracts and consider and assess the situation of each enterprise to make suitable adjustments.
Hard task for small lenders
According to figures from the central bank, the common lending interest rate of state-owned commercial joint stock banks for corporate customers is 12-15 percent per year, individual customers is 14-17 percent per year, and 0.5-1.5 percent per year added for old loans.
Meanwhile, the lending interest rate for new loans at state-owned commercial joint stock banks is 13-17 percent per year, individuals is above 17 percent, and it is even higher for old loans, at 18-20 percent per year.
The number of commercial banks providing loans for four prioritized sectors with a preferential interest rate is not high, as the average input costs at some joint stock banks are still high and the saving interest rates, standing at 11 percent per year, 12 percent per year and 14 percent per year, are still in the capital mobilization structure of banks.
Tran Du Lich, a member of the National Monetary Policy Consultancy Council, said although liquidity of Ho Chi Minh City-based banks is stable, weak commercial banks and average banks, classified as group 4 and group 3 by the SBV, now have high bad debts and slow-paced debt recoverability.
Therefore, the deposit rate at these banks is still higher than the common level.
Maybe these weak banks will still limit new loans, but they cannot quickly cut the interest rate for old loans.
Thus, the reduction of lending the rate for old loans is only expected from the state-owned bank group and large commercial joint stock banks in groups 1 and 2.