Vietnam - Many banks fail to reduce interest rates to 15pct as per SBV instruction

Despite the central bank Governor’s request of lowering interest rates to 15pct for existing loans before 15 July, many commercial banks have failed to put it into practice citing missing detailed written instructions from the State Bank of Vietnam (SBV).

The central bank’s intervention may trigger substandard loans resulting in massive bad debts in the coming years, said the manager of a joint stock commercial bank.

In fact, given the mobilisation ceiling rate easing to 12pct for 3 months, such relaxation may not be a tough task, said Dr Cao Si Kiem, former Governor. However, the widespread application on all loans and customers may be inappropriate, according to many experts.

Vice Chair of LienvietPostBank Nguyen Duc Huong expressed concerns on negative implications of such reduction on small banks. In the meantime, many other lenders’ managers argued the rate of 15pct should merely be applicable to four prioritised sectors as such flat rate could fail to reflect credit risk exposure of each loan particularly consumption ones.

Those which pioneer in easing interest rate to 15pct are mostly large state-owned banks with strong liquidity position and plenty of exclusive privileges. Smaller ones may find it more challenging since capital that was previously mobilised at high interest rates has yet been fully disbursed. Therefore, compulsory interest rate relaxation for current loans could mean incurring losses and give rise to additional fees apart from interest rates so as to make up for such losses.

In all likelihood, the central bank’s requirement would be encouraging rather than compulsory. However, this non-market measure could prove relatively effective due to its influence on commercial banks’ rating by the central bank.

Director of the Economics Research centre at Maritime Bank Trinh Quang Anh suggested the rate could be applicable to good customers while the relaxation could hardly mean a lot to those of weak payment capacity.

VietBiz24

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