Interest rate aid package expected to reduce pressure on lending interest rates

In the context of rising inflation, many banks have increased deposit interest rates to attract idle money. This step has caused many businesses to worry that lending rates will increase. However, many people said that the 2 percent interest rate of the State's support package can help reduce the pressure to increase lending interest rates.
Interest rate aid package expected to reduce pressure on lending interest rates ảnh 1 The State Bank of Vietnam directs credit institutions in the city to implement the 2 percent interest rate support package 
In May 2022, except for the group of state-owned joint-stock commercial banks including Agribank, Vietcombank, Vietinbank, and the Bank for Investment and Development of Vietnam (BIDV) that have not yet recorded an increase in deposit interest rates, most other commercial banks have increased their deposit rate from 0.3-0.5 percentage points compared to the end of 2021.
The pressure to raise deposit rates is also evident in the difference between credit and deposit, which has fallen to the lowest level in 8 years, when data from the State Bank showed that credit as of the end of April 2022 has increased by 6.75 percent compared to the end of 2021, while capital mobilization only increased by 3.55 percent. The sharp increase in credit made more commercial banks join the wave of raising savings interest rates to boost capital mobilization.
Following this development, industry experts said that it is difficult for deposit interest rates to remain at the low level as before, not only due to the accelerated increase in capital demand for credit but also due to increasing inflationary pressure. Therefore, banks must increase deposit interest rates to compete with other investment channels such as real estate, and securities in attracting capital.
According to forecasts of securities companies, it is expected that deposit interest rates will only increase slightly by 0.3 percent-0.5 percent this year while lending interest rates are unlikely to fall further when the economy has been showing signs of recovery. Not only that, experts of VNDirect Securities Company said that it is expected that the 2 percent interest rate support package can help reduce the average basic lending interest rate in 2022.
A leader of a commercial bank in Ho Chi Minh City also said that since the beginning of the year, deposit interest rates for many terms have also been adjusted by 0.4 percentage points, but the bank has not increased lending rates much for it has saved capital costs through promoting digital transformation. In addition, the increase in demand deposit facilities has helped banks attract low-interest capital to keep lending rates from rising sharply.
He added that the bank is currently registering the total amount to be implemented under the Government's 2 percent interest rate support package in 2022 and 2023 to provide capital support for businesses. With this policy, in the short term, lending interest rates will remain basically stable to help businesses’ production recovery and business activities.
Credit in the first five months of 2022 reached over VND11 quadrillion, up 7.66 percent compared to the end of 2021 and doubled over the same period last year, so many commercial banks are currently in a shortage of credit lines. Many banks said that when the interest rate support package has not been launched, credit demand was very high because, after two years of the pandemic, people and businesses had a great need for loans for investment and production.
Furthermore, with the current economic recovery momentum, it is expected that the demand for loans will increase sharply in the coming time.
Some commercial banks said that they are ready to implement the 2 percent interest rate support package but their credit limit has been exhausted. According to Vietcombank, by the end of April 2022, credit has grown at over 9/10 percent of the granted limit, equivalent to a net increase of about VND100 trillion (US$4.2 billion).
Mr. Nguyen Duc Lenh, Deputy Director of the State Bank of Vietnam, Ho Chi Minh City branch, said that he has directed credit institutions in the city to implement the 2 percent interest rate support package according to Circular 03/2022 of the State Bank of Vietnam for loans from enterprises, cooperatives and business households associated with the disbursement of a credit package of more than VND400 trillion.
At the same time, the State Bank of Vietnam's branch in Ho Chi Minh City will organize programs to connect banks and businesses. In addition, the state bank will have dialogues with credit institutions and businesses to make them understand the mechanisms and policies to implement the support package efficiently.
With Vietcombank's total outstanding loan of over VND1 quadrillion, customers are entitled to an interest rate support package at approximately 30 percent of the total bank balance, but the bank’s current credit limit will certainly not be enough to meet the needs of customers.
According to a representative of VietinBank, currently, those who meet the requirements for interest rate support account for about 30 percent of the bank’s total credit. The implementation of the interest rate support package will promote credit growth, but limited constraints will put great pressure on the short-term, medium- and long-term growth of the bank.
BIDV said that currently, about 10,000 customers are presently eligible for interest rate support and more people will be eligible for the aid package, so this bank also recommends extending the credit limit.
Because most commercial banks have used up the credit limit granted since the beginning of the year, they are waiting for approval of a new credit limit. Ms. Ha Thu Giang, Deputy Director in charge of the Credit Department for Economic Sector (SBV), said that in principle, commercial banks that do not use up their credit limit will be transferred to other banks. Because in fact, currently, many commercial banks have exhausted their credit limit while some other banks have slow increases or decreases in credit.
Regarding the proposal to loosen the credit limit, Deputy Governor of the State Bank Dao Minh Tu said that hot credit growth would raise difficulties in inflation control, but tightening credit would affect economic growth, so credit limit must be satisfactorily resolved.
“The State Bank will consider, calculate, and monitor the volume of credit to the economy, of which the first credit growth must be in line with the target to control inflation and with the interest rate policy of the State Bank of Vietnam and other macro relationships; at the same time, creating room for the implementation of the 2 percent interest rate aid package,” emphasized Deputy Governor Dao Minh Tu.

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