Banks’ appetite for real estate lending drives up interest rates

Interbank rate and interest rate increased sharply this week. While before the Tet holiday, interbank offered rate was approximately 4 per cent per year, now it increased to 5-5.1 per cent. Per annum deposit interest rate and lending rate also increased by 0.1- 0.3 percentage point and by 1 percentage point, respectively.

The State Bank of Vietnam (SBV) confirmed that the upward trend of interest rate only occurred at some small banks and does not show a general trend in the banking system. The SBV also said it would guide these banks to stabilize lending rates in order to help enterprises.

However, a large number of securities companies projected that interest rate would increase slightly compared to last year.

According to Bao Viet Securities Company, per annum deposit and lending rates will increase by 0.5-1 percentage point in 2017, while Saigon Securities Inc. expected that interest rates will be difficult to decrease this year.

Some experts explained that the lending interest rate rose because deposit interest rose, which was in turn caused by inflation. However, Dr Dinh The Hien, a financial specialist, believed that this is not the real reason.

He said deposit rates increased because of the lack of cash in banks. There are a few reasons for this.

First, banks have been recently concentrating on medium and long-term loans so the cash has not come back yet.

Second, some enterprises failed to pay their loans on time. Hoang Anh Gia Lai Group is a telling example.

The third and underlying reason is that recently, lending is focused on real estate with terms from 5 to 15 years, whereas the proportion of lending to the manufacturing sector (medium and small enterprises, agriculture sector) is lagging. As a result, the growth of loans is much higher than that of the GDP.

“In conclusion, the increase in the lending rate is predictable as the government makes ineffective investments and banks love to lend to the property sector. Credit for real estate increased significantly in the period from 2014 to 2016,” Dr Hien said.

In the past two years, SBV has continuously reminded banks to channel their credit flows into the real estate market and transport infrastructure.

RELATED CONTENTS:
	Inter-bank rates drop sharply after Tet
	Interest rate under pressure to remain unchanged
	Upward trend in bank interest rates
	Some banks cut deposit interest rates
	Banks cut back lending for property sector