Hanoi (VNA) –🦩 Domestic banks forecast that the lending interest rates would drop in line with the government’s policy to support production and business activities of enterprises.

Illustrative photo (Photo: VNA)

Reducing both deposit and lending interest rates have never happened in the year-end credit season. But, this year, the fact has occurred at many domestic banks thanks to the banking system’s high liquidity.

Massive interest rate reduction

The State Bank of Vietnam (SBV) has issued two documents on the adjustment of both deposit and lending interest rates, effective from November 19. Accordingly, the interest rate of short-term VND loans for agriculture, rural development, export, supporting industry, small- and medium-sized enterprises (SMEs) and businesses applying high technologies will be reduced from 6.5 percent per annum to 6 percent per annum.

The interest rate of short-term VND loans of the People’s Credit Fund and microfinance institutions for these fields will be cut from 7.5 percent per year to 7 percent per year.

Earlier, a number of banks had cut lending interest rates such as the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), the Vietnam Joint Stock Commercial  Bank for Industry and Trade (VietinBank) and the Vietnam Maritime Commercial Joint Stock Bank (MSB).

Vietcombank became the first bank in the group of “Big 4” to lower the lending interest rate by 0.5 percent for businesses operating in all spheres. Although the interest rate adjustment decision just came into force on November 18, all enterprises that signed loan agreements with Vietcombank since November 1, 2019 are entitled to the attractive policy.

Chairman of the Vietcombank Board of Directors Nghiem Xuan Thanh said the interest rate cut will directly affect the bank’s outstanding loans worth more than 320 trillion VND (13.85 billion USD). As a result, Vietcombank’s profit is forecast to drop by 260-300 billion VND in the two remaining months of 2019.

However, Thanh said, Vietcombank’s profit for the whole year will not be affected since the bank will improve the quality of credit, reduce costs earmarked for reserve and minimize operating costs.

On November 19, VietinBank also announced its decision to lower short-term VND loans from 6.5 percent per annum to 6 percent for capital needs serving agriculture, rural development, export, supporting industry, small- and medium-sized enterprises (SMEs) and businesses applying high technologies.

A representative of VietinBank said the bank always provides special support for prioritized sectors and areas in according to the direction of the government and the SBV by increasing loans for agricultural and rural development projects and production.

Accompanying clients during the peak production and business season, MSB also cut the lending interest rate by 2 percent for enterprises and business households. In particular, the bank cut the lending interest rate for agricultural production and livestock breading by up to 3.6 percent.

Commenting upon the move, Director of the BIDV’s Capital and Money Trading Department Do Ngoc Quynh said the SBV’s request for interest rate reduction will certainly affect the market. “The SBV aims to reduce all interest rates of the economy. The deposit and lending interest rates will surely drop in the coming time and see clearer signals in 2020,” he said.

The interest rate cut will reduce capital costs and encourage more businesses and investors engage in the market, thereby stimulating the growth of the economy, Quynh added.

This is the third time domestic banks have lowered interest rates, after the two rounds in January and August.

Lower interest rates will support businesses' production activities. (Photo: VNA)

Abundant liquidity 

In contrast to developments in the previous years, the banking system’s liquidity in the first days of the fourth quarter of 2019 – the peak business season – has been more abundant than expected.

Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, said the liquidity of domestic banks is rather high so the inter-bank interest rate has fallen over the past weeks, meaning the demand for mutual borrowing among banks has decreased.

🍌 A representative of a commercial bank said the deposit interest rate cut aims to help the SBV adjust and stabilize interest rates on the market in the remaining months of the year, therefore creating a premise to pull down the lending interest rate in the coming time./.