Banks move to decrease borrowing costs again
Some commercial banks have cut deposit interest rates by 0.2-0.5 percentage points in the past 10 days to reduce input capital costs and further lower borrowing costs.
Vietcombank, one of the big four by assets in Vietnam's banking system, cut the annual deposit interest rate for three months and shorter terms by up to 0.3 percentage points to 5%. Some branches of Military Bank lowered its highest deposit interest to 7.5% from 8% per year. Other small banks listed deposit interests at 8.5-8.7% annually.
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Economist Tran Du Lich, cited by Thoi Bao Tai Chinh (Vietnam Financial Review), said, "The cut is to test the market validity."
The 5% deposit interest will be good as it was likely to guarantee a positive real interest rate for depositors and to help banks circulate their capital in the economy, Lich said. [A positive real interest rate is a situation when the nominal interest rate is higher than the inflation rate].
This early step on deposit cuts is likely to mark the second wave of adjustments since the beginning of the year. It should be noted that the cut occurs at a time when banks are struggling with high-cost abundant capital sources that are getting harder to lend.
Prior to the cut, industry experts said trimming deposit rates was a must to make capital cheaper for borrowers and make loans more accessible.
Luu Duc Hai at the Development Strategy Institute under the Ministry of Planning and Investment said, "Vietnamese enterprises are bearing too high capital costs that reduce their competitive and productive capacities in exports and domestic markets."
Although Vietnamese exporters have access to special interest rates ranging between 8% and 10% annually, the borrowing costs are estimated to be 1.4 to twice as high as those prevailing in some regional countries. On the other hand, Vietnamese producers in non-priority sectors are paying between 10% and 13%.
At the May Government meeting, the State Bank of Vietnam Governor Nguyen Van Binh said credit demand was weak.
The credit growth of Vietnam's banking system rose to 1.31% between January and May 23; the total supply was an estimated 5.28% higher than in the end of last year; and the total mobilised capital increased by 4.2%. This is sparking doubts about the feasibility of a 12-14% credit growth by the year-end.