Tempting interest rate
Interestrates have been on a downward trend through 2013. So far this year,interest rates have been slashed by 3-5 percent from the end of 2012when commercial lending rates were pegged at 13-17 percent per annum.Presently, rates hover at 12-13 percent per annum. Besides, someborrowers with good profile can access loans bearing an interest rate of11 percent per annum. Lending rates for five priority borrowers haveslid from 12 percent per annum to 9 percent.
Interest rates on old loans have also been revised down by some banks tosome 13 percent per annum. Commercial lenders have also activelysupported corporate clients to restructure their debts in order to helpthem restore operations and improve bad debt ratios.
Lending rate reduction also resulted in a rapid deposit rate decrease.Ceiling rate on VND deposits is capped at only 7 percent per annum,applicable to only deposits with a maturity of less than six months.Currently, common deposit rates are 4.6-7 percent per annum for 3-monthterm, 5-7 percent for 6-month term, and 5.5-8.5 percent for 12-monthterm.
Rapid rate reduction and easing borrowingconditions failed to boost credit growth for the time being, because ofeconomic slowdown. Therefore, there is a silence but fierce competitionamong banks to draw new customers. Many banks have launched variouspromotional programmes and soft loans for personal borrowers towards theend of the year.
From now until December 31, 2013,Southeast Asia Commercial Joint Stock Bank (SeABank) continues toimplement its home loan programme called “Your home, our priority” withzero interest rate in the first month and a fixed interest rate of aslow as 10 percent per annum in the next 11 months. The lender allowsborrowing up to 70 percent of house value in 15 years, plus a potentialgrace period of 12 for principal repayment. Their houses are thecollateral for the loans.
Vietnam Technological andCommercial Joint Stock Bank (Techcombank) also reported to spare a hugecredit for personal clients to buy real estate, vehicles and consumerproducts at an appealing interest rate of 9.99 percent per annum in thefirst nine months in the event of 5-year or longer borrowing term, insix months in the event of 3-5-year term, and in three months in theevent of three-year or shorter term.
For corporateclients, Techcombank offers a soft loan programme, featuring an interestrate of 8.2 percent per annum on VND loans and 3.8 percent on USD loansthrough December 31, 2013. The rates are very competitive andapplicable during the borrowing period.
SaigonThuong Tin Commercial Joint Stock Bank (Sacombank) also announcedlending of 2 trillion VND to corporate borrowers, bearing anpreferential interest rate of 9 percent per annum, to meet the risingdemand for finances before the Lunar New Year 2014.
Other banks also have their own promotion programmes to stimulatecredit demand towards the end of the year. This has credit easing, withlower interest rates and easier access to capital.
Companies are still hungry for capital although borrowing costs havedropped dramatically. Poor business performance has inhibited them fromaccessing new loans. New business plans are postponed by unfavourablebusiness operations. Meanwhile, really capital-hungry companies cannotaccess loans because banks do not want to fund highly risky plans. Thesecompanies have often incurred bad debts at banks, which are subject tobeing restructured.
It is two months ahead of theLunar New Year – the busiest business period in the year for mostenterprises. This leads to growing borrowing demand during this time.However, the situation seems to be different this year. Credit growth ishalf of the full-year target of 12 percent. At a recent conference, LeQuang Trung, Deputy General Director of Vietnam International Bank(VIB), predicted the credit growth would be just 9 percent in 2013.
Interest rates are attractive, but this is not as much a primaryconcern of enterprises as it was one year ago. Many companies haveshrunk production on contracting demand to reduce costs to live throughthis difficult time. Hence, although banks are offering appealingly lowinterest rates, they are not eager to borrow.
Normally, personal consumer demand also soars ahead of the Lunar NewYear. But this year stagnant production, rising unemployment anddeclining income have contracted consumer demand. The housing marketremains gloomy. Fears of unemployment and decreasing incomes in thefuture have forced many people to delay vehicle purchase, home repairand expensive furniture purchasing. So, consumer credit is hard to findcustomers.
Although deposit rates drop, thepublic is still keen on placing their money at banks. If credit is notboosted, excess capital at banks may occur. Then, banks will be in agreater difficulty because their incomes are still largely relying oncredit. This is a driving force for banks to intensify cash flows intothe economy in the coming time.-VNA