Tempting interest rate
Interest rates 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 2012 when commercial lending rates were pegged at 13-17 percent per annum. Presently, rates hover at 12-13 percent per annum. Besides, some borrowers with good profile can access loans bearing an interest rate of 11 percent per annum. Lending rates for five priority borrowers have slid from 12 percent per annum to 9 percent.
Interest rates on old loans have also been revised down by some banks to some 13 percent per annum. Commercial lenders have also actively supported corporate clients to restructure their debts in order to help them 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-month term, 5-7 percent for 6-month term, and 5.5-8.5 percent for 12-month term.
Rapid rate reduction and easing borrowing conditions failed to boost credit growth for the time being, because of economic slowdown. Therefore, there is a silence but fierce competition among banks to draw new customers. Many banks have launched various promotional programmes and soft loans for personal borrowers towards the end of the year.
From now until December 31, 2013, Southeast Asia Commercial Joint Stock Bank (SeABank) continues to implement its home loan programme called “Your home, our priority” with zero interest rate in the first month and a fixed interest rate of as low as 10 percent per annum in the next 11 months. The lender allows borrowing up to 70 percent of house value in 15 years, plus a potential grace period of 12 for principal repayment. Their houses are the collateral for the loans.
Vietnam Technological and Commercial Joint Stock Bank (Techcombank) also reported to spare a huge credit for personal clients to buy real estate, vehicles and consumer products at an appealing interest rate of 9.99 percent per annum in the first nine months in the event of 5-year or longer borrowing term, in six months in the event of 3-5-year term, and in three months in the event of three-year or shorter term.
For corporate clients, Techcombank offers a soft loan programme, featuring an interest rate of 8.2 percent per annum on VND loans and 3.8 percent on USD loans through December 31, 2013. The rates are very competitive and applicable during the borrowing period.
Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) also announced lending of 2 trillion VND to corporate borrowers, bearing an preferential interest rate of 9 percent per annum, to meet the rising demand for finances before the Lunar New Year 2014.
Other banks also have their own promotion programmes to stimulate credit demand towards the end of the year. This has credit easing, with lower interest rates and easier access to capital.
Companies are still hungry for capital although borrowing costs have dropped dramatically. Poor business performance has inhibited them from accessing new loans. New business plans are postponed by unfavourable business operations. Meanwhile, really capital-hungry companies cannot access loans because banks do not want to fund highly risky plans. These companies have often incurred bad debts at banks, which are subject to being restructured.
It is two months ahead of the Lunar New Year – the busiest business period in the year for most enterprises. This leads to growing borrowing demand during this time. However, the situation seems to be different this year. Credit growth is half of the full-year target of 12 percent. At a recent conference, Le Quang 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 primary concern of enterprises as it was one year ago. Many companies have shrunk production on contracting demand to reduce costs to live through this difficult time. Hence, although banks are offering appealingly low interest rates, they are not eager to borrow.
Normally, personal consumer demand also soars ahead of the Lunar New Year. But this year stagnant production, rising unemployment and declining income have contracted consumer demand. The housing market remains gloomy. Fears of unemployment and decreasing incomes in the future have forced many people to delay vehicle purchase, home repair and expensive furniture purchasing. So, consumer credit is hard to find customers.
Although deposit rates drop, the public is still keen on placing their money at banks. If credit is not boosted, excess capital at banks may occur. Then, banks will be in a greater difficulty because their incomes are still largely relying on credit. This is a driving force for banks to intensify cash flows into the economy in the coming time.-VNA