Lending rates may fall in the current macroeconomic context, but it is unlikely they will steeply drop to 5-8% as desired, heard a forum on challenges and opportunities for businesses in 2013 held in HCMC last Saturday.
An entrepreneur from the Binh Dinh Businessmen Club in HCMC posed a question as to why lending rates in Vietnam cannot be lowered to 2-3% as in the U.S. or other Western countries. In response, Tran Du Lich, deputy head of the HCMC delegation of National Assembly deputies said lending rates could not be drastically cut overnight as the local financial market was distorted and enterprises heavily depended on banks.
“Ninety seven percent of domestic loans, including short, medium and long-term, are granted by banks, meaning banks are dominating the local financial market, while in other countries, medium and long-term funds are usually provided by non-bank financial institutions,” he said.
The financial cost of businesses in 2012 is estimated at US$20 billion, or one-sixth of the gross domestic product (GDP), indicating that Vietnam’s economy is growing on debt rather than equity.
Meanwhile, interest rate is a result of capital supply and demand in the market and cannot be decided by the State. Therefore, the central bank cannot use administrative measures to force banks to offer loans with low interest rates.
Low lending rates will lead to low deposit rates. So, citizens would switch to buying gold and foreign currency rather than depositing their money at banks, said Lich, adding that much work remains to be done in order to further bring down lending rates.
The central bank will keep the deposit rate ceiling for a little longer to help banks settle their liquidity problem, and then it will be removed. “If the deposit rate cap was removed now, the banks facing liquidity shortage would sharply raise their deposit rates and other banks would have to follow suit,” said Lich.
Tran Anh Tuan, general director of Nam A Bank, said that last year banks offered an interest rate of 7-8% for deposits of less than 12 months, while those with terms of 12 months or above were mobilized with a rate of 10-12%.
Therefore, it is difficult for banks to slash lending rates to 5-8% as desired by enterprises. Tuan predicted lending rates would be around 11% this year.
What the Government must do now is to restore the market confidence after the market was disoriented by ad hoc solutions and constant changes in the 2008-2012 period, said Lich.
He forecast that the Government would soon introduce a market support package with three groups of solutions for inventory, bad debt and the real estate market.
“The Government will help the market make self-adjustments, not launch an economic stimulus package like in 2009. Thus, 2013 will be an opportunity for those having done business properly and unlikely to fold,” he said.
He hoped the market support package would take effect this year, and thus Vietnam’s economic outlook is not entirely pessimistic for the next 12 months.
The Saigon Times Daily